Building materials to revive in H2, says Motilal Oswal; top stock bets here

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Motilal Oswal on Building Materials: Domestic Brokerage Motilal Oswal Financial Services (MOFSL) expects the building products sectors - including wood panel and tiles & bathware - to witness a recovery from the second half of financial year 2026 (H2FY26) following a slowdown over the past two to three years. 

 

According to the brokerage, the revival will be supported by low unsold housing inventory and the spillover of project launches from FY25 into FY26. "The industry is poised to benefit from the expansion of the real estate sector, increased government focus on infrastructure and housing, growing premiumisation and urbanisation, and the implementation of the Bureau of Indian Standards (BIS) that promotes quality manufacturing," it said in a note.

 

MOFSL has initiated coverage on Century Plyboards with a 'Buy' rating and Cera Sanitaryware with a 'Neutral' stance. It also maintained a 'Buy' on Kajaria Ceramics.

Here's why MOFSL is positive on building materials sector:

Headwinds easing; structural drivers intact

According to analysts, demand in wood panels and tiles & bathware surged during Covid (FY21–22) as housing sales and renovations increased, helping companies report peak earnings and gain share from struggling unorganised players. While volumes softened from H2FY24 due to front-loaded demand, slower housing sales and overall inflationary scenario, analysts believe the segment’s structural growth drivers remain intact despite headwinds seen in the last 2-3 years.  ALSO READ | Brigade Ent rises 5%, pares gains later; what sparked early trade rally?

Launch spillover to lift demand in FY26

MOSFL said India’s real estate sector remains a key driver for building products. With unsold inventory still low and many delayed FY25 project launches expected to spill over into FY26, buyer sentiment is likely to improve and lead to an uptick in demand for building products starting in FY26. Real estate’s share of GDP is projected to rise sharply by FY47, supported by strong fundamentals, infrastructure expansion, and robust rural demand. 

 

However, election-related delays and slower absorption temporarily lifted inventory levels in FY25; the upcoming launch pipeline should revive buyer sentiment. As per the report, an 11 per cent CAGR in realisations over FY21–25 reflects a clear shift toward premium housing, strengthening prospects for branded building products.

 

During the past 2-3 years, low volumes and elevated raw material costs have impacted the margins and earnings of building material companies. Return ratios also remain subdued as capex has risen sharply since FY22. 

 

Amid expectations of demand revival and the end of large-scale capex, analysts at MOFSL expect these companies to report healthy improvement in earnings and return ratios over FY25-28.

 

MOFSL has initiated coverage on Century Plyboards India with a 'Buy' rating and a target price of ₹958, based on 36x Sep’27E P/E, in line with its 10-year average one-year forward multiple.

 

According to the brokerage, the medium-to-long-term outlook for the wood panel industry remains intact on the back of a rise in real estate registrations, commercial projects under implementation, a rise in private capex, and a demand shift to branded players.   ALSO READ | Kotak 'assertive' on affordable HFCs; Aadhar, Aavas, Aptus among top picks 

"We see it as a strong play on the growing interior infrastructure market in India with a comprehensive product portfolio, strong brand recall, and a wide distribution network," the note added. Additionally, the company commands a better pricing power in the market due to its premium positioning backed by high brand recall, better channel support, and after-sales services. 

 

MOFSL also initiated coverage on Cera Sanitaryware (CRS) with a 'Neutral' rating and a target price of ₹5,842, based on 26x Sep’27E P/E versus its 10-year average one-year forward multiple of 33x.

 

As per the report, notwithstanding the prevailing economic slowdown, the company management maintains an optimistic demand outlook, driven by stable demand for home improvement. Analysts expect the company revenue/Ebitda/PAT to grow at a CAGR of  9 per cent/10 per cent/8 per cent over FY25-28E, respectively.  

 

Healthy operating performance, combined with a disciplined credit policy, will enable CRS to generate free cash flow (₹600 crore over FY25-28), increasing its cash surplus to over ₹1,000 crore in FY28.    (Disclaimer: Target price and stock outlook has been suggested by Motilal Oswal Financial Services. Views expressed are their own.)