Anand Rathi starts coverage on building materials; Supreme, Cera top picks

Brokerage firm Anand Rathi Shares & Stock Brokers has initiated coverage on India’s building materials sector with a positive outlook, citing a gradual recovery in demand, especially in rural and semi-urban areas, a better pricing environment supported by rising trade flows and commodity prices, and comfortable valuations.

According to the brokerage, building material companies have reported muted year-on-year (Y-o-Y) revenue growth for the past 12 quarters, driven by a slowdown in the rural economy from Q4FY23, weakness in the urban real estate market from Q2FY25, and pricing pressure from intense competition in a soft demand environment.

Within the building materials universe, the brokerage said the plastic pipe business has a relatively superior business risk profile, followed by bathware, tiles, and wood panels. The ranking is based on industry growth prospects driven by diversified end-user industries and replacement demand, stronger pricing discipline reflected in high organised share, low import threats, and limited global linkage, as well as lower capital expenditure intensity.

Considering these factors, the brokerage has assigned 'Buy' ratings to most building material stocks, with Supreme Industries, Cera Sanitaryware, and Greenpanel Industries as its preferred picks in the plastic pipe, ceramics, and wood panel segments.

Plastic pipes segment set for strong growth

Analysts at Anand Rathi said the plastic pipes segment has a superior business risk profile, being the fastest-growing segment in the building materials sector with diversified end-user industries and a stable margin profile, as volatile PVC resin prices are largely passed on to consumers with a small lag. The brokerage expects the sector to enter an earnings upgrade cycle in the coming quarters, driven by improved demand in rural and semi-urban markets and a potential uptrend in PVC resin prices.

Anand Rathi has initiated coverage with a 'Buy' rating on Supreme Industries with a target price of ₹5,000, Astral (TP ₹2,000), and Finolex Industries (TP ₹240).

Bathware leads ceramics sector

According to Anand Rathi, within the ceramics space, the bathware category has a more favourable business risk profile than tiles, supported by stronger pricing discipline from a higher share of organised players, where brand visibility influences consumer choice, and lower capital requirements in faucet-ware.

"The valuation of the ceramics sector has become quite comfortable (trades at 24 per cent discount to pre-COVID P/E multiple even during a depressed earnings cycle)," the brokerage said in its note.

Anand Rathi has initiated coverage on Cera Sanitaryware with a target price of ₹6,500 and Kajaria Ceramics with a target price of ₹1,200, assigning both stocks a Buy rating.

Wood panel segment sees selective opportunities

The brokerage said that the wood panel segment has a relatively weaker business risk profile compared with pipes and ceramics due to weak pricing discipline from a low organised share, high capital intensity, and the cyclical B2B nature of MDF and particleboard.

However, the brokerage initiated coverage on Greenpanel Industries with a target price of ₹320 and Greenply Industries with a target price of ₹300, assigning 'Buy' ratings, citing a positive outlook for the MDF segment, which appears to have bottomed out, and attractive valuations.

It also initiated coverage on Century Plyboards with a target price of ₹800 and Greenlam Industries with a target price of ₹245, assigning 'Hold' ratings due to expensive valuations, despite a rising share of capital deployed in the MDF/particleboard business.