On the back of a muted real estate demand (which got derailed further in Q3FY20 led by CAA protests across the nation and construction ban in the NCR region), coupled with deferment in renovation demand and liquidity constraints, we expect Q3FY20 building material sector (ex-plumbing pipes) volumes to remain under pressure. However, benign input costs and lower tax rates are expected to drive double-digit growth in PAT. We estimate our building material coverage universe to report an aggregate revenue/Ebitda/PAT growth of 4.2%/13.8%/25% y-o-y, respectively, (ex-PIDI: 3.9%/9.1%/11.7% y-o-y), in Q3 with plumbing pipes likely to sustain their outperformance over peers. While ASTRA and PIDI are likely to outperform in Q3FY20, VSKI and CRS are expected to be the laggards.
Plumbing pipe: Top CPVC pipe players (ASTRA in particular), is likely to gain an impressive market share in Q3 aided by recent imposition of anti-dumping duty on CPVC resin/compound imported from China/Korea. PVC pipe volumes are, however, likely to witness some softness q-o-q driven by falling PVC prices. Margins for top pipe players are expected to improve y-o-y on the back of firm CPVC pipe margins and operating leverage despite likely inventory losses in PVC pipes segment. Ceramic tile: Branded tile players are likely to witness low to mid-single digit volume growth (aided by market share gains) and muted margins amid sluggish demand environment and pricing pressure. While Ebitda margins for KJC are likely to decline, SOMC is expected to report higher margins y-o-y due to lower base in particular
Sanitaryware: We expect growth to be in negative terrain due to subdued real estate demand. Margins, too, are likely to see a dip y-o-y due to operating deleverage and pricing pressures. Wood panel: Demand is likely to be muted due to restrained growth in occupation of premises and likely deferment of renovation demand. However, players are likely to report an improvement in Ebitda margin led by benign input (resin and commercial veneer) costs. Adhesives and construction chemicals: On the back of challenging macro environment, adhesives space is expected to grow in mid-single digit aided by increasing awareness and improving replacement demand. Margins, though, are likely to improve y-o-y due to softness in input costs. Trend in input costs.