In Q4FY22, we expect both tiles and plastic pipe companies' volumes to grow YoY, despite the high base. Despite earlier cost pass-through, we estimate margin compression YoY amid elevated gas prices for tiles companies, higher resin prices, and absence of inventory gains for plastic pipe companies. Hence, we expect aggregate revenue for our coverage universe to firm up 19% YoY. However, we expect overall YoY margin compression to drive aggregate EBITDA/APAT down by 7/18% YoY. We maintain a positive stance on both sectors. We maintain BUY on Kajaria Ceramics, Somany Ceramics, Supreme Ind, and Prince Pipes. We also upgrade Astral to ADD from REDUCE.
Tiles and bathware: Domestic tiles sales have been positive in Q4 (we expect muted growth on a high base YoY), led by healthy demand from real estate and retail segments. Q4 volumes should also look up, owing to higher dealer stocking, as companies had been communicating of price hike late March to pass on gas price inflation. We also estimate pricing to remain firm YoY on account of earlier price hikes. Energy cost in Morbi region remained elevated but was stable QoQ. However, long-term contract gas prices (outside of Morbi) have been on a rise due to rising crude prices. Domestic tiles prices largely remained flattish QoQ due to supply pressure from Morbi players (as export sales remained weak in Q4). Sanitaryware demand continues to be strong, which has helped players pass on raw material inflation.
Plastic pipes: After weak sales in Q3, sales picked up in Q4, leading to healthy growth YoY. Both building and agri segment sales have improved. As resin prices started to rise Mar onwards, dealer stocking accelerated in anticipation of cost pass-through (in PVC segment). Healthy demand for CPVC allowed companies to pass on resin price hikes. We do not expect any major inventory gains/losses in Q4.
Performance of companies: We expect national players to deliver ~5% YoY volume growth and EBITDA margin to slightly improve QoQ (though down YoY). We expect Kajaria/Somany to report ~100/200bps QoQ margin expansion to ~18/13% (down ~200/300bps YoY). For pipes companies, we expect volumes for Supreme/Astral/Prince to rise 6/10/5% YoY on healthy demand. However, owing to higher raw material costs and no expected inventory gains, we expect EBITDA margin to compress YoY. We estimate consolidated EBITDAM for Supreme/Astral/Prince to contract ~8/4/3pp YoY to ~17/18/16% in Q4FY22.
iew on stocks: We remain positive on both tiles and pipes demand. We roll forward valuations to Mar-24E (from Dec-23E earlier). Factoring in elevated gas prices, we have cut profit estimates for tiles companies Kajaria and Somany Ceramics. We maintain our BUY ratings on Kajaria Ceramics, Somany Ceramics, Supreme Ind, and Prince Pipes. We upgrade our rating on Astral to ADD (from REDUCE earlier) on account of its healthy volume traction.