Building Material Stocks Set to Rally on Housing Demand Recovery: Motilal Oswal

Brokerage firm Motilal Oswal Financial Services has expressed a positive outlook on India’s building products sector, highlighting potential gains in stocks such as Century Plyboards, Kajaria Ceramics, and Cera Sanitaryware. After a slowdown over the past few years, the brokerage expects demand to recover in the second half of FY26, driven by low unsold housing inventory and spillover from FY25 project launches.

The building products industry, which includes wood panels, tiles, and bathware, stands to benefit from several factors: the ongoing expansion of the real estate sector, government focus on housing and infrastructure, rising urbanisation, growing demand for premium products, and the implementation of the Bureau of Indian Standards (BIS) guidelines promoting quality manufacturing. Motilal Oswal believes these elements will support improved earnings and return ratios for industry players over FY25-28.

Century Plyboards: Strong Recovery Play

Motilal Oswal has initiated coverage on Century Plyboards with a “buy” rating and a price target of Rs. 958 per share, representing a potential upside of 27%. The brokerage notes that Century Plyboards is well-positioned to benefit from a revival in housing demand and the broader interior infrastructure market in India.

The company’s premium positioning, strong brand recall, wide distribution network, and after-sales services allow it to command better pricing in the market. Motilal Oswal forecasts a CAGR of 15% in revenue, 32% in EBITDA, and 51% in PAT for Century Plyboards between FY25 and FY28, compared to low growth rates over FY19-25. Return on equity (RoE) and return on capital employed (RoCE) are expected to improve to 18% and 23%, respectively, by FY28, driven by ramped-up utilisation and operational efficiency.

Cera Sanitaryware: Neutral Rating, Moderate Upside

Coverage on Cera Sanitaryware has been initiated with a “neutral” rating and a price target of Rs. 5,842, indicating a modest 6% upside. The brokerage has applied a 15% discount to the company’s P/E ratio compared to Kajaria Ceramics due to expected slower earnings growth.

Cera’s historical performance shows revenue, EBITDA, and PAT growth of 6%, 7%, and 14% CAGR between FY19-25. Motilal Oswal projects a 9%, 10%, and 8% CAGR over FY25-28, reflecting steady industry-aligned growth. Strong operating performance, disciplined credit policies, and a healthy free cash flow of Rs. 600 crore over FY25-28 are expected to increase the company’s cash surplus to over Rs. 1,000 crore by FY28. While the substantial cash balance may suppress RoE to 16%, the return on invested capital (RoIC) is expected to remain high at 47%, reflecting efficient use of capital.

Kajaria Ceramics: Robust Premium Play

Kajaria Ceramics retains a “buy” rating with a price target of Rs. 1,252 per share, implying 15% potential upside. The brokerage highlights Kajaria’s leadership in the tiles segment, strong execution capabilities, high free cash flow generation, and focus on expanding market share through distribution reach.

Motilal Oswal projects FY25-28 CAGR of 10%, 20%, and 34% for revenue, EBITDA, and PAT, respectively, compared to low single-digit growth in FY19-25. Return metrics are also expected to improve significantly, with RoE at 18%, RoCE at 25%, and RoIC at 36%, alongside annual free cash flow of around Rs. 500 crore. The brokerage notes that easing inflation and GST cuts on essential items may further spur consumer demand in the second half of FY26.

Sector Outlook and Stock Performance

The brokerage believes that the building products sector is poised for a structural recovery, with low unsold housing inventory, project spillovers, and premiumisation trends driving growth. Motilal Oswal highlights Century Plyboards as the top pick, followed by Kajaria Ceramics, while maintaining a neutral stance on Cera Sanitaryware.

As of Wednesday, November 26, shares of Century Ply, Cera Sanitaryware, and Kajaria Ceramics were trading up to 1.7% around 12:25 pm. Analyst coverage shows the following ratings:

With renewed housing demand, easing inflation, and improving consumer sentiment, the building materials sector could see strong earnings recovery and stock performance in the near term.