Cracks in earnings of tile and plastic pipe makers may widen in Q1

Tough Times Ahead for Pipe and Tile Makers: Q1FY26 Outlook

Investors in plastic pipe and ceramic tile manufacturers should brace for a challenging June quarter (Q1FY26). Weak demand and pricing pressures are casting a long shadow over these sectors.

Plastic Pipe Manufacturers Face Headwinds

• Sluggish Demand: Plumbing pipe demand is expected to remain weak, further hampered by reduced government spending on infrastructure projects and the early arrival of the monsoon impacting agricultural pipe sales.
• Price Pressure: While pipe companies have implemented price hikes (2.5-5.0%) to offset rising poly vinyl chloride (PVC) resin costs, average realization is projected to remain stagnant compared to March 2025. A BoB Capital Markets report (June 18th) based on interactions with 17 dealers highlights this challenge.
• Q4FY25 Recap: The previous quarter saw muted volume growth, falling PVC prices, channel destocking, and resulting margin contraction. Dealer restocking decisions are heavily influenced by PVC price fluctuations.
• Impact on Earnings: Nuvama Research indicates a 10% and 7% contraction in EBITDA and PAT, respectively, for covered pipe companies, primarily due to destocking and lower government spending.

Ceramic Tile Makers Struggle with Oversupply and Weak Exports

• Domestic Market Challenges: Domestic demand is moderate, exacerbated by oversupply and intense competition. A shift of 5-10% of Morbi's export volumes to the domestic market in FY25 has flooded the market with excess inventory, putting significant pressure on pricing (PL Capital report, June 14th).
• Export Woes: Weak tile exports are expected to persist due to trade tariffs impacting US sales and a slowdown in global demand. While a potential recovery in individual home building in H2FY26 might boost demand, margin improvement hinges on a significant export revival.
• Q4FY25 Recap: Listed tile makers faced margin pressure from sluggish retail demand and increased competition from Morbi-based companies. Nuvama's data reveals a mere 2% year-on-year top-line growth, alongside a 20% and 52% decrease in EBITDA and PAT, respectively.

Stock Performance Reflects Sectoral Challenges

Disappointing Returns: Shares of major players have underperformed significantly. Kajaria Ceramics and Somany Ceramics have each declined by 24% in the past year, while Supreme Industries, Prince Pipes, Finolex Industries, and Astral Industries have seen drops ranging from 30-50%. This is attributed to poor earnings and broader market volatility, with mid-cap and small-cap stocks disproportionately affected.

Conclusion: The outlook remains cautious for both sectors. While potential future growth drivers exist, navigating the current challenges of weak demand, pricing pressures, and export headwinds will be crucial for these companies.

For deeper analysis, refer to Mark to Market.