Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Google
Web www.equitybulls.com
Research

| More

Building material - Sector Update - ICICI Securities

Posted On: 2020-07-07 21:52:37


Balance sheet discipline and cost control take precedence

The Covid-19 led countrywide lockdown in Mar'20 disrupted Q4FY20 volumes of majority of building material (BM) companies under our coverage. However, gross margin expansion demonstrated by majority of these companies was the key silver lining for the quarter. While sales disruption is likely to persist for at least the next couple of quarters, BM companies at large have already taken aggressive steps with regards to strengthening of balance sheet and cost saving initiatives which would enable them to cushion a material fall in their EBITDA margins (for FY21) and also ride through these testing times. Our top picks in the space are Century Plyboards (which replaces GRLM - our earlier top pick, which has already performed to our expectations) and Astral Poly Technik.

- Q4FY20 hits and misses. Majority of BM players (ex-GNPL) reported a sharp decline in their Q4FY20 revenues with PIDI and SIL reporting a single digit decline while others in double digits. However, lower input costs and better product mix enabled all BM companies (ex-MTLM) to report gross margin expansion for the quarter. However, it did not trickle down to the same extent (ex-GNPL) to EBIDTA margins due to lost sales in Mar'20 on account of sudden Covid-19 led lockdown announced by the Centre leading to operating deleverage. Despite higher inventory pressure due to Mar'20 lockdown, companies like CPBI, GNPL and ASTRA were able to report significant improvement in working capital over the last one year. CPBI, however, stood out reporting higher RoCEs (up 200bps) in FY20.

- Rural India, pent-up and channel inventory filling marks better-than-expected recovery in May and Jun'20. In the wake of Covid-19 led extended countrywide lockdown, the demand for major building material categories took a beating in Apr'20. However, our checks suggest that majority of building material categories (with plastic pipes relatively outperforming in growth versus tiles and wood panel space) have seen an impressive recovery in demand in May and Jun'20 largely led by an impressive demand in upcountry regions/rural India, inventory channel filling and pent-up demand to some extent. We, however, cannot construe this as a trend (with focus on secondary sales) and would rather focus on volume offtake in Jul and Aug'20 and Covid-19 crisis to depict any trend for the current fiscal.

- Categories likely to recover faster. Besides branded plastic pipe players, which is expected to benefit from sustained consolidation in PVC/CPVC pipes segment, we expect recovery in MDF (driven by expected higher demand for modular furniture post Covid-19 era) and laminate (firm exports demand and market share gains in domestic laminates) segments to be ahead of other branded categories like tiles, sanitaryware and plywood (high discretionary based categories).

- Aggressive cost control measures key to margin sustenance. Besides rationalising their brand spends, majority of building material companies have resorted to employee salary cuts (except for categories like plastic pipes) and cut in other fixed costs like branch/warehouse rentals, travelling expenses and other admin costs which may cover up (to an extent) for the likely volume decline in this fiscal. As far as input costs are concerned, gross margins are likely to remain firm (until H1FY21 atleast) with prevailing input cost deflation on account of lower demand for these categories in the near term.

- Focus to intensify on cash collections and balance sheet strengthening. We expect our building material coverage universe to continue focusing on cash collections, which alongside inventory liquidation (post inventory build-up witnessed in Mar'20 due to nationwide lockdown announced by the centre), would result in improved working capital cycle in FY21. Higher cash collections, muted capex and resultant paring of debt would result in balance sheet strengthening for majority of BM players, which would enable these companies to survive in these testing times.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Cadila Healthcare - Q1FY21 First Cut - ICICI Securities

Dwarikesh Sugar - Q1FY21 First Cut - ICICI Securities

Jyothy Lab - Q1FY21 First Cut - ICICI Securities

Avenue Supermarts - Company Update - August 2020 - ICICI Securities

Hawkins Cookers - 1QFY21 Results - Angel Broking

Maintain REDUCE on Godrej Consumers - Strong comeback in H1 - HDFC Securities

ADD on Gujarat Gas - A complete washout quarter - HDFC Securities

SELL on Vinati Organics - At an inflexion point - HDFC Securities

Expectations from the upcoming RBI Policy - HDFC Securities

AXIS Bank - 10,000 Cr QIP - Angel Broking

PI Industries - Mr. Jyoti Roy, DVP - Equity Strategist, Angel Broking Ltd.

Maintain BUY on Teamlease Services - Recovery on the cards ICICI Securities

Reiterate ADD on Tata Motors - Volatile environment - ICICI Securities

Tata Consumer Products Ltd - 1QFY21 results - Rajit Rajoriya, Equity Research Associate, Angel Broking Ltd

Maintain REDUCE On Karur Vysya Bank - Pain inevitable - HDFC Securities

Sovereign Gold Bonds - Thematic Report - ICICI Securities

Varun Beverages - Q2CY20 Result Update - ICICI Securities

Saregama India - Company Update - August 2020 - ICICI Securities

Exide Industries - Q1FY21 Result Update - ICICI Securities

Indian Oil Corporation - Q1FY21 Result Update - ICICI Securities

Maintain ADD on Indian Oil Corporation - High inventory losses drag earnings - HDFC Securities

Maintain BUY on Cholamandalam Investment & Finance - A mostly good show - HDFC Securities

Maintain ADD on BSE - Fighting its way back - HDFC Securities

Maintain ADD on Motilal Oswal Financial Services - In-line performance - HDFC Securities

Maintain BUY on Sobha - A smooth ride with few bumps - HDFC Securities

Banking Sector Credit Trends Report - Growth slows, as expected - HDFC Securities

Maintain ADD on Sun Pharma - Cost savings drive the quarterly beat - HDFC Securities

Auto Sector Performance - July'20 - Angel Broking

Sector Thematic on Indian Gas Sector - Looking beyond the pandemic - HDFC Securities

ADD on Max Financial - Lower margins despite higher protection - HDFC Securities

Maintain BUY on Mastek - Changing orbit - HDFC Securities

Mantain REDUCE On Dabur - In-line 2Q, slight beat in domestic volume - HDFC Securities

CreditAccess Grameen - Q1FY21 - YES Securities

ADD on Torrent Pharma - Resilient performance - HDFC Securities

BSE Limited - Pricing pressure remains a challenge - ICICI Securities

Kansai Nerolac Paints - Better-than-expected trajectory in decorative paints -

VA Tech Wabag - High receivables, low margins to impact earnings - ICICI Securities

CreditAccess Grameen - Customer activation trend shows resilience - ICICI Securities

Tata Chemicals - Q1FY21 Result Update - ICICI Securities

VST Industries - Q1FY21 Result Update - ICICI Securities

ADD on Navin Fluorine International - Commendable performance - HDFC Securities

Whirlpool of India - Valuations belie outlook; risk-reward unfavourable - ICICI Securities

Kansai Nerolac - Q1FY21 First Cut - ICICI Securities

Exide Industries - Q1FY21 First Cut - ICICI Securities

Monthly Auto Volumes - July, 2020 - ICICI Securities

Cholamandalam Investments and Finance Company Ltd - Q1FY21 Result Update - YES Securities

Mahindra logistics - Q1FY21 Result Update - YES Securities

Bluedart Express - Q1FY21 Result Update - YES Securities

Tata Motors - Cost improvements reassuring - ICICI Securities

Godrej Agrovet - Deflation in input prices leads to higher margin - ICICI Securities







Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019