Brokerage firm HDFC Securities is bullish on consumer discretionary goods and services (CDGS) sector ahead of Q1FY23 results. The brokerage has given buy call rating to Kajaria Ceramics, Somani Ceramics, Supreme Industries and Prince Pipes with a target price of Rs. 1,310 Rs. 840, Rs. 2,630, and Rs. 830, respectively. Whereas the brokerage has indicated ADD rating for the shares of Astral Limited at a target price of Rs. 1.790.
HDFC Securities in a note said that “In Q1FY23, we expect volumes from both tile and plastic pipe companies to moderate QoQ. However, given last year’s low base, we expect strong year-on-year growth. We expect margin pressure in both the segments. Increased gas prices and slower export offtake (for ceramics) and inventory losses and channel destocking (for pipes) will reduce margins in Q1 FY23. Therefore, we expect total revenue for our coverage universe to decline by 18% QoQ (though it could be 46% YoY on a lower basis). In addition, we expect the overall EBITDA margin to shrink by 250/300bps QoQ/YoY due to the above mentioned headwinds. We buy from Kajaria Ceramics, Somani Ceramics, Supreme Industries, and Prince Pipes and Astral on ADD.”
“We expect the national ceramics players to deliver ~50% YoY volume growth (on a low basis), less than ~7-10% QoQ. Due to higher gas prices, we expect both Kajaria and Somani to grow at ~160 /155bps QoQ EBITDA margin compression (down from 85/35bps YoY) will report 13.5% and 6.7% respectively. On a lower basis, higher volumes will give both Kajaria/Somani a 72/64% year-on-year EBITDA rebound. Similarly, on a lower basis , we expect piped volume for Supreme/Astral/Prince to grow 52/53/59% year-on-year.However, we expect their EBITDA margin to be 355/470 due to inventory loss and delay in cost pass-through, respectively /305bps YoY,” HDFC Securities said.
“We remain positive on demand for both tiles and pipes, owing to continued healthy domestic demand outlook (in both segments) and expected rebound in tile exports (easing pressure on domestic prices). In the near future, increased gas prices will continue to affect the margins of ceramic manufacturers. In addition to supporting growth in plumbing sales, PVC resin price correction should boot price-sensitive agricultural demand. Taking into account higher gas prices (tiles) and inventory losses (pipes), we reduce our profit projections for coverage companies and lower our target prices for FY23/24E. We maintain BUY on Kajaria Ceramics, Somani Ceramics, Supreme Industries and Prince Pipes. We maintain ADD on Astral,” HDFC Securities claimed.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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