Building Materials Q1 Results Preview - Margin Expected To Improve, Healthy Volume: Prabhudas Lilladher

Prabhudas Lilladher Report

Building material companies under our coverage universe are expected to report healthy volume growth with strong traction in real estate, agriculture and infra.

We expect companies to register sales growth of 1.2% YoY, given correction in raw material prices which mainly impacted plastic pipe segment realisations. With sequential stable raw material prices and correction in power and fuel expenses, we expect margins to go back to normal level (+250 basis points YoY) along with Ebitda/profit after tax growth of 20.8%/21.1% YoY (on high base).

We remain positive on the sector considering-

1. buoyancy in real estate market (despite interest rate hike),

2. Government focus of housing, sanitation and infrastructure,

3. improvement in agriculture segment with normalization in raw material prices,

4. pick up in export, and

5. increase in branded/large players market share.

We rate Prince Pipe and Fittings Ltd. as our top pick, considering healthy volume growth of ~14% post Q1 FY24 (next nine months-FY24), as April and first week of May were impacted post migration to global enterprise resource planning system. Ebitda margin is expected to be ~13- 15% for the same period.

We estimate FY23-25E sales/Ebitda/profit after tax compound annual growth rate of 12.5%/41.3%/60.6% with volume CAGR of 12.3% and Ebitda margin of 13.5%/14.6% in FY24/FY25E.

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