In the January-March quarter, the plastic pipe company is expected to outperform its peers in other segments in construction materials in terms of volume and profitability. Strong demand in the core pipeline segment is expected to help pipeline companies achieve double-digit growth in the current quarter. In contrast, categories such as ceramic tile bathrooms and wood planks may see mid- to high-single-digit growth rates and face multiple demand headwinds.
Demand in most construction materials segments will remain subdued in the third quarter of 2023-24 (Q4FY24) due to weak consumer sentiment due to inflation, Systematics Research said citing a channel survey. However, the brokerage’s Ashish Poddar and Mahek Shah expect the pipeline segment to maintain its momentum and grow at 12-25% YoY driven by key verticals like pipelines, infrastructure and agriculture.
In contrast, demand from ceramic tile and wood panel companies is weak this quarter, with major listed companies expected to grow by 5-9%. Commenting on ceramic tile companies, Axis Securities said disruption to international trade in the Red Sea has increased container costs fivefold and doubled shipping times, dragging down the pace of ceramic tile exports.
This is shifting production from export-oriented units to the domestic market (and putting pressure on prices). Brokerages Venkatesh Balasubramaniam and Shubham Aggarwal noted that demand in the domestic ceramic tile industry is weakening. Analysts expect Kajria Ceramics’ sales to grow 7% year-over-year, but realizations will decline. Kajria Ceramics and Somani Ceramics expect volume growth of 3-4%, while soft gas consumption is likely to maintain higher margins.
Plywood demand in FY24 Q4 will remain similar to December quarter (Q3). According to data from BoB Capital Markets, the wood-based panel industry’s operating profit fell 4.5% in the third quarter for the sixth consecutive quarter due to profit pressure from the demand environment and higher import pressure of medium-density fiberboard. MDF) particleboard and rising timber prices.
Fourth quarter wood panel displays will be impacted by higher wood prices, increased imports and intense competitive pressure, especially from regional players. Analysts led by Amit Purohit of Ilara Securities said the extension of BIS standards for MDF and particleboard would be detrimental to the industry in the short term. “Furthermore, the influx of cheap MDF imports has impacted the domestic market perception. We expect demand for ceramic tiles and wood panels to improve in the second half of FY25 as per pipeline trends.”
While Greenply’s MDF sales and receipts are expected to be flat year-on-year, sales of Century and Greenply are likely to increase. The industry price correction is likely to be 4% this quarter. Elara Securities’ top picks are Astral and Century Plyboard.
Even with other companies struggling, performance in the pipe industry is expected to be led by Supreme Industries and Astral, which could see 20-25% volume growth. Prince Pipes and Finolex Industries are expected to underperform the market leaders with growth rates of 12-15%. Systematics Research said pipe companies are optimistic of maintaining volume growth and healthy profit margins in the coming quarters amid low and stable PVC prices. Its top picks in construction materials are Stylam Industries in wood panels and Carisil in tiles and bathroom products. It has a hold rating among all players in the plastic pipe space.
