 "Pipes")
In the January-March quarter, plastic pipe firms are expected to outperform peers in other categories within the building-material space in volumes and margins. Strong demand from key segments within the pipe category is expected to help pipe companies post double-digit growth in the quarter. By comparison, categories like tile-bathware and wood panel could report mid to high single-digit growth rates and face multiple demand headwinds.
Citing channel checks, Systematix Research suggests demand for most building material categories would remain soft in the March quarter of 2023-24 (Q4FY24), given an inflation-led weakness in consumer sentiment. However, Ashish Poddar and Mahek Shah of the brokerage expect the pipes segment to sustain its momentum and report robust 12-25 per cent year-on-year (Y-o-Y) volume growth, boosted by the major verticals of plumbing, infrastructure and agriculture.
In contrast, the tile and wood-panel players saw weak demand in the quarter and major listed players are expected to post 5-9 per cent growth. Commenting on tile companies, Axis Securities said a disruption in international trade through the Red Sea led to a five-time increase in container cost and doubled the transit time, dragging the run-rate of tile exports.
This is diverting production from export-oriented units to the domestic market (and putting pressure on prices). Venkatesh Balasubramaniam and Shubham Aggarwal of the brokerage pointed out that domestic demand for the tile sector continued to remain weak. The analysts expect Kajaria Ceramics to deliver 7 per cent Y-o-Y volume growth, along with a decline in realisation. Kajaria Ceramics and Somany Ceramics are expected to report low 3-4 per cent volume growth, while softer gas costs could keep margins high.
Plywood demand in Q4FY24 is likely to remain similar to that in the December quarter (Q3). The wood-panel sector, according to BoB Capital Markets, saw an operating profit contraction of 4.5 per cent for a sixth straight quarter in Q3 due to a dull demand environment and margin stress from high import pressure in medium-density fibreboard (MDF) particleboard and elevated timber prices.
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The wood-panel showing in Q4 would be impacted by a rise in timber prices, higher imports and intense competitive pressures, especially from regional players. According to analysts led by Amit Purohit of Elara Securities, the extension of BIS standard implementation for MDF and particle board has been detrimental to the sector in the near term. “Furthermore, an influx of inexpensive MDF imports has affected domestic segment realisation. We expect demand to improve for tiles and wood panels in the second half of FY25, following the trend in pipes.”
While Greenply’s MDF volume and realisation is expected to be flattish on a Y-o-Y basis, it may rise for Century and Greenply. The sector could see a price correction of up to 4 per cent in the quarter. Elara Securities’ preferred picks are Astral and Century Plyboards.
Even as the other companies struggle, the pipe sector’s performance is expected to be led by Supreme Industries and Astral, which could see their volumes rising 20-25 per cent. Prince Pipes and Finolex Industries are expected to underperform the market leaders, with growth of 12-15 per cent. Pipe companies are optimistic about sustaining volume growth and healthy margins in the coming quarters amid low and stable PVC price, says Systematix Research. Its preferred picks in the building-material space are Stylam Industries in wood panels and Carysil in tiles and bathware. It has a hold rating on all players in the plastic pipes segment.
