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Following a slowdown over the past two to three years, it expects the sector, including wood panel, tiles, and bathware, to experience a recovery in the second half of this fiscal.
The brokerage said the revival in the second half would be underpinned by low unsold housing inventory and the spillover of project launches from the financial year 2025 into FY26.
The building products 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, Motilal Oswal said.
Building Material Stock Bets
Motilal Oswal has initiated coverage on Century Plyboards and Cera Sanitaryware, and re-iterated its "buy" rating on Kajaria Ceramics.
The brokerage said low volumes and elevated raw material costs hurt the margins and earnings of building product companies over the last two to three years. Their return ratios also look depressed in many cases due to a surge in capex since FY22.
Driven by the expectation of demand improvement from the second half of this fiscal and the end of large-scale capex in the past couple of years, Motilal Oswal said it anticipates these companies to report healthy improvement in earnings and return ratios over FY25-28. It said it sees healthy return potential in Century Ply, followed by Kajaria Ceramics.
Century Plyboards India
Motilal Oswal has initiated coverage with a "buy" rating on the stock, with a price target of ₹958 per share, showcasing an upside potential of 27%.
It believes the company is well-placed to capitalise on a demand pick-up in the housing sector. Century Plyboards is seen 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.
It said Century Ply commands better pricing in the market due to its premium positioning backed by high brand recall, better channel support and after-sales services.
Century Plyboards' revenue, EBITDA and Profit After Tax (PAT) could grow at a Compounded Annual Growth Rate (CAGR) of 15%, 32% and 51% respectively over financial year 2025-2028, after they respectively grew by a lowly 12%, 8% and 5% growth between financial year 2019-2015.
It also expects the current return on equity (RoE) and return on capital employed (RoCE) to improve to 18% and 23%, respectively, in FY28, with a ramp-up in utilisation.
Cera Sanitarywear
Motilal Oswal has initiated coverage on the stock with a "neutral" rating and a price target of ₹5,842 apiece, indicating a 6% upside potential.
It said it has assigned a 15% discount to Kajaria Ceramics' target price-to-earnings ratio of 30x due to its lower earnings growth expectation.
Following a 6%, 7% and 14% CAGR in revenue, EBITDA and PAT, respectively, over FY19-25, Motilal Oswal has estimated a 9%, 10% and 8% CAGR over FY25-28, in line with industry growth.
The brokerage said healthy operating performance, combined with a disciplined credit policy, will enable the company to generate strong free cash flow of ₹600 crore over FY25-28, increasing its cash surplus to over ₹1,000 crore in FY28 from the present ₹600 crore.
Although the substantial cash balance can suppress its return on equity to 16%, the brokerage estimates a high return on invested capital of 47% in the coming years.
Kajaria Ceramics
The brokerage has a "buy" rating on the stock with a price target of ₹1,252 per share, implying a potential upside of 15%.
It said it likes the stock due to its:
- Number one status in tiles
- Execution capabilities
- Strong free cash flow
- Focus on market share gains led by expansion in distribution reach
It believes the company's medium-to-long-term outlook is quite robust. The management also is looking at a demand revival from the second half of FY26, aided by improving consumer sentiment due to easing inflation and GST rate cuts on essential times.
The brokerage said that after a low 8%, 6% and 4% CAGR in revenue, EBITDA and PAT, respectively, over FY19-25, it has projected a CAGR of 10%, 20% and 34% over FY25-28. It has projected an 18%, 25% and 36% return on equity, return on capital employed and return on invested capital, respectively, and a strong free cash flow of ₹500 crore annually.
Stock performance
Here is the coverage analysts have on the three stocks:
| Stock | Buy | Hold | Sell |
| Century Ply | 13 | 8 | 2 |
| Kajaria Ceramics | 17 | 13 | 2 |
| Cera Sanitaryware | 13 | 4 | 1 |
Shares of Century Ply, Cera Sanitaryware, Kajaria Ceramics were trading up to 1.7% up around 12.25 pm on Wednesday.
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