17 January 2024 Q3FY24 Results Preview

Building Materials
No sign of demand revival, stable margins
In Q3FY24, our coverage universe’s revenue/EBITDA/APAT are expected to COMPANY RATING TP (INR)
grow by 8/31/43% YoY respectively. Revenue growth is muted owing to sub-par Kajaria Ceramics ADD 1,530
demand for tiles, wood panels and lower realisation for pipes. EBITDA/ PAT Somany Ceramics BUY 1,010
will rise strongly, mainly owing to higher inventory loss (pipes) and gas price
Supreme Ind. REDUCE 4,290
(tiles) in the base quarter. We estimate tile majors to report healthy ~7-8% YoY
Astral Limited BUY 2,160
volume growth in Q3FY24 like H1FY24. EBITDA margins are expected to
Prince Pipes ADD 790
remain stable QoQ for tiles sector. Demand has softened in the pipes segment
CenturyPly BUY 820
(still healthy). We expect our pipes coverage universe volume to grow by 10%
Greenapanel Ind. BUY 480
YoY (+5% QoQ). PVC prices have declined by INR 6/kg at Dec-23 end vs Sep-
23 end, so companies might report inventory loss in Q3. We expect similar sub- Greenlam Ind. ADD 605

par demand across ply, laminates, MDF, and particle board segments with Stylam Ind. BUY 2,550

stable gross margin QoQ.

 Tiles sector—demand yet to pick up, stable margin QoQ: We expect the
market leaders Kajaria and Somany to report volume growth of 7-8% YoY in
Q3FY24, in line with H1FY24. We expect tiles demand to pick up in FY25 and
market leaders will report low double-digit volume growth. Tiles export
continues to be strong leading to lower dumping by Morbi in the domestic
market. Tiles realisation has been stable QoQ in Q3. We expect EBITDA
margin too will remain stable QoQ for the sector.
 Plastic pipes—demand softens, inventory loss can impact profitability:
Demand has softened in the pipes segment (still healthy). We expect our pipes
coverage universe volume to grow by 10% YoY (+5% QoQ). We expect Astral/
Supreme Ind. volume to grow by 17/12% YoY. Prince Pipes will lose market
share and its volume will de-grew by 1% YoY. PVC prices have corrected in
October’s first half, and trends have reversed thereafter. Net PVC prices have
declined by INR 6/kg at Dec-23 end vs Sep-23 end, so companies might report
inventory loss in Q3. PVC prices have increased by INR 3/kg from Jan-24 start.
 Wood panel—similar demand and gross margin pattern to continue: We
expect similar sub-par demand for wood panels in Q3 like H1FY24. Timber
prices have further shot up in the south. However, resin prices have corrected.
We expect a stable gross margin QoQ. We expect Greenlam to grow fastest
among peers by 26% YoY (aided by Prantij ramp-up), followed by CenturyPly
by 12% YoY (higher growth in MDF - Hoshiarpur ramp-up). We expect a 3%
YoY revenue decline for Stylam owing to the war in key export market Israel
and lower realisation. We expect Greenpanel revenue to decline by 5% YoY
owing to weak performance in the ply segment (flattish MDF revenue YoY).
 View on stocks: We have been positive on the tiles sector, as we expect strong
demand for tiles in next financial year. We are positive on pipes sector
demand too, although valuation is not comfortable in all stocks. We expect a
pick-up in wood panel demand in the latter half of next year. Recently, ocean
freight rates have increased sharply, negative for laminate and tiles export Rajesh Ravi
(positive for MDF import). Lastly, the mandatory compliance with BIS from rajesh.ravi@hdfcsec.com
Feb-23 is also a positive development for MDF. We have maintained estimates +91-22-6171-7352
for most of the companies. However, for a few companies, we have cut
estimates as pipe demand has softened and there is no sign of pick-up in tiles
and wood panel demand. However, target prices of the coverage universe Keshav Lahoti
have increased by 4-12%, as we roll forward our valuation to Mar-26E vs Sep- keshav.lahoti@hdfcsec.com
25E earlier. We have upgraded our rating on Astral to BUY from ADD and +91-22-6171-7353
Greenlam Ind. to ADD from REDUCE. We maintain our ratings on other
companies.

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Building Materials: Q3FY24 Results Preview

Q3FY24 estimates for tiles, pipes and wood panel companies

Net Sales (INR mn) EBITDA (INR mn) EBITDA Margin (%) Adj. PAT (INR mn)
Y/E March
Dec-23 YoY (%) QoQ (%) Dec-23 YoY (%) QoQ (%) Dec-23 YoY (%) QoQ (%) Dec-23 YoY (%) QoQ (%)
Kajaria Ceramics $ 11,630 6.6 3.7 1,878 41.1 4.5 16.2 4.0 0.1 1,199 61.4 11.1
Somany Ceramics $ 6,681 7.3 2.0 661 63.1 3.2 9.9 3.4 0.1 282 136.2 (3.8)
Supreme Ind. $ 25,188 9.0 9.1 4,081 34.5 14.5 16.2 3.1 0.8 2,827 34.6 16.2
Astral Limited $ 13,765 8.6 1.0 2,675 43.5 21.5 19.4 4.7 3.3 1,636 75.9 24.7
Prince Pipes 6,827 (3.3) 4.0 940 35.3 (0.2) 13.8 3.9 (0.6) 548 54.7 NA
CenturyPly $ 9,879 11.8 (0.9) 1,553 20.7 7.6 15.7 1.2 1.2 979 19.1 1.1
Greenapanel Ind. $ 4,000 (4.8) 3.6 679 (26.2) 3.3 17.0 (4.9) (0.1) 360 (4.2) (3.5)
Greenlam Ind. $ 6,332 25.8 4.9 827 51.0 9.5 13.1 2.2 0.5 401 41.6 (3.3)
Stylam Ind. $ 2,268 (3.1) (3.0) 446 13.3 (4.4) 19.7 2.8 (0.3) 295 22.7 (5.3)
Aggregate 86,570 7.7 4.0 13,742 31.2 10.2 15.9 2.8 0.9 8,526 42.9 10.6
Source: Company, HSIE Research, $ - Consol numbers, NA – not applicable

Annual estimates
Net Sales (INR bn) EBITDA (INR bn) EBITDA Margin (%) Adj. PAT (INR bn)
Y/E March
FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E
Kajaria Ceramics $ 47.15 54.33 60.34 7.71 9.39 10.64 16.4 17.3 17.6 4.94 6.10 6.98
Somany Ceramics $ 26.52 29.69 33.21 2.60 2.96 3.56 9.8 10.0 10.7 1.07 1.26 1.66
Supreme Ind. $ 99.07 110.06 122.27 15.29 18.64 20.76 15.4 16.9 17.0 10.50 12.92 14.35
Astral Limited $ 57.69 70.91 81.85 10.54 13.33 15.40 18.3 18.8 18.8 6.46 8.24 9.68
Prince Pipes 26.64 30.46 34.18 3.48 4.33 4.90 13.0 14.2 14.3 1.96 2.56 2.91
CenturyPly $ 39.89 47.28 54.80 6.23 7.48 8.89 15.6 15.8 16.2 4.00 4.27 5.21
Greenapanel Ind. $ 16.41 19.38 23.15 2.89 3.74 4.95 17.6 19.3 21.4 1.67 2.19 2.94
Greenlam Ind. $ 24.81 31.16 36.08 3.23 4.17 5.09 13.0 13.4 14.1 1.63 1.78 2.32
Stylam Ind. $ 9.4 11.4 14.0 1.9 2.4 2.9 19.9 20.6 20.6 1.2 1.6 2.0
Source: Company, HSIE Research, $ - Consol numbers

NPM (%) RoCE pre-tax (%) RoE (%) Net D:E (x)
Y/E March
FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E
Kajaria Ceramics $ 10.5 11.2 11.6 23.5 26.2 26.4 19.3 21.0 21.0 (0.1) (0.1) (0.1)
Somany Ceramics $ 4.0 4.2 5.0 13.1 14.4 16.4 12.2 13.7 16.0 0.4 0.4 0.3
Supreme Ind. $ 10.6 11.7 11.7 26.4 28.5 27.6 22.3 23.8 22.9 (0.1) (0.2) (0.2)
Astral Limited $ 11.2 11.6 11.8 27.3 29.8 30.0 20.2 22.1 22.2 (0.2) (0.3) (0.3)
Prince Pipes 7.4 8.4 8.5 17.8 20.5 20.5 13.6 15.6 15.6 (0.2) (0.2) (0.2)
CenturyPly $ 10.0 9.0 9.5 22.0 19.9 21.7 19.0 17.1 17.7 0.2 0.2 0.0
Greenapanel Ind. $ 10.2 11.3 12.7 14.6 17.2 20.5 13.2 15.2 17.7 (0.1) 0.0 (0.0)
Greenlam Ind. $ 6.6 5.7 6.4 13.5 12.9 15.1 15.6 14.9 16.8 0.9 0.8 0.6
Stylam Ind. $ 13.3 14.0 14.0 33.3 34.7 33.8 26.6 26.8 25.9 (0.1) (0.1) (0.2)
Source: Company, HSIE Research, $ - Consol numbers

Rating and target price revision summary

Mcap CMP New Old New TP Old TP Valuation EV/EBITDA (x) P/E (x)
Company
(INR bn) (INR/sh) Rating Rating (INR) (INR) multiple^ FY24E FY25E FY26E FY24E FY25E FY26E
Kajaria Ceramics $ 222.9 1,400 ADD ADD 1,530 1,470 35.0 28.5 23.2 20.4 45.1 36.6 31.9
Somany Ceramics $ 29.8 703 BUY BUY 1,010 920 25.0 12.9 11.4 9.4 26.8 22.9 17.3
Supreme Ind. $ 526.5 4,144 REDUCE REDUCE 4,290 4,090 40.0 34.0 27.7 24.7 50.1 40.7 36.7
Astral Limited $ 481.8 1,791 BUY ADD 2,160 2,040 60.0 45.5 35.6 30.7 74.6 58.5 49.8
Prince Pipes 78.6 711 ADD ADD 790 745 30.0 21.7 17.4 15.1 40.1 30.7 27.0
CenturyPly $ 173.3 779 BUY BUY 820 745 35.0 28.9 24.0 19.6 43.3 40.6 33.3
Greenapanel Ind. $ 50.3 410 BUY BUY 480 435 20.0 17.1 13.5 10.0 30.1 23.0 17.1
Greenlam Ind. $ 63.1 523 ADD REDUCE 605 540 33.0 22.6 18.2 14.6 40.8 37.3 28.6
Stylam Ind. $ 28.1 1,656 BUY BUY 2,550 2,300 22.0 14.8 11.7 9.1 22.5 17.6 14.3
Source: Company, HSIE Research ^Valuation is based on Mar-26E PE basis. CMP as on date Jan 16, 2023

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Rating Criteria
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Kajaria Ceramics

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Building Materials: Q3FY24 Results Preview

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Building Materials: Q3FY24 Results Preview

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