HDFC Securities says to BUY these 4 CDGS stocks ahead of Q1FY23 results

Brokerage firm HDFC Securities is bullish on the consumer discretionary goods and services (CDGS) sector ahead of Q1FY23 results. The brokerage gave shares of Kajaria Ceramics, Somany Ceramics, Supreme Industries and Prince Pipes a buy rating with target prices of Rs. 1,310 rupees. 840, rupees. 2,630 and rupees. 830, respectively. While the brokerage has indicated an ADD rating for Astral Limited shares at a target price of Rs. 1,790.

HDFC Securities said in a note that “In the first quarter of FY23, we expect volumes from the plastic tile and pipe businesses to moderate QoQ. However, given last year’s low base, we expect a strong year-on-year upside. We expect margin pressure in both segments. High gas prices and slowing exports (for ceramics) and inventory losses and channel destocking (for pipes) would lead to lower margins in Q1FY23. As a result, we expect aggregate revenue from our coverage universe to decline 18% QoQ (although it may increase 46% YoY on a weak basis). Additionally, we expect the overall EBITDA margin to contract by 250/300 bps QoQ/YoY due to the headwinds described above. We are maintaining BUY on Kajaria Ceramics, Somany Ceramics, Supreme Ind and Prince Pipes and ADD on Astral.”

“We expect domestic ceramics players to see volume growth around 50% YoY (on a weak basis), lower around 7-10% YoY. Due to high prices gas, we expect Kajaria and Somany to see an EBITDA margin compression of around 160/155 bps QoQ (down 85/35 bps yoy) to 13.5% and 6 .7% respectively On a low basis, higher volumes should allow Kajaria/Somany to achieve an EBITDA rebound of 72/64% YoY.Similarly, on a low basis, we expect Pipe volumes for Supreme/Astral/Prince are growing 52/53/59% YoY, however, we expect their EBITDA margins to squeeze 355/470/305bps respectively YoY due to inventory losses and delays in passing on costs,” said HDFC Securities.

“We remain positive on both tile and pipe demand, thanks to a still healthy domestic demand outlook (in both segments) and the expected rebound in tile exports (less pressure on domestic prices). In the short term, high gasoline prices will continue to impact ceramic manufacturers’ margins. The correction in PVC resin prices should boost price-sensitive agricultural demand, in addition to supporting the rise in plumbing sales. Taking into account high gas prices (tiles) and inventory losses (pipes), we are reducing our profit estimates for hedgers for FY23/24E and lowering our target prices. We maintain BUY on Kajaria Ceramics, Somany Ceramics, Supreme Ind and Prince Pipes. We maintain ADD on Astral,” HDFC Securities said.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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