Post-covid, listed companies in the home decor industry have been in focus, especially for market share gains from their regional and smaller counterparts. Rising working capital needs and elevated raw material prices have put companies operating in the unorganised sectors in a tight spot at the peak of the pandemic, which benefitted larger companies.
Among the various segments of the home decor industry, analysts say, wood panel makers would see higher growth than pipe and tile makers, driven by the consolidation theme.
Analysts at Edelweiss Securities Ltd point out that the share of unorganised companies in the wood panel sector is still the highest at around 65-70%. This gives ample room for listed companies to capture futher market share. “In the home décor industry, we now prefer the wood panel space given strong industry consolidation, much like in plastic pipes during FY21,” said the Edelweiss report dated 20 December. The domestic brokerage house expects the wood panel industry to report an earnings per share CAGR of 42% over FY21–24 versus a 32% CAGR for tiles and an 8% CAGR for plastic pipes makers. CAGR is short for compounded annual growth rate.
Another factor that could give the sector’s growth trajectory a further boost is the Indian government intervention.
“Indian Government is actively considering imposing tighter restrictions on imports of several items, including furniture (India imports readymade furniture worth c.INR 28bn annually, of which 40-50% comes from China) and possible Counter Vailing Duty (CVD) on MDF (15-23% of India consumption),” analysts at JM Financial Institutional Securities Ltd said in a report on 16 December. Also, the government has identified readymade furniture as one of the 20 sectors to make India a hub for global exports. “We believe this augurs well for MDF manufacturers in India as it improves volume visibility along with potential for price hikes,” added the report.
On the flip side, listed companies in the wood panel sector saw cost inflation weighing on their margins. To tackle this, companies have been taking gradual price hikes.
In a post Q2FY22 earnings conference call, the management of Greenlam Industries Ltd said that it has hiked prices further by around 7% in domestic and 3% in export segment from October 2021.
Peer Century Plyboards (India) Ltd guided for Ebitda margins of around 13-15% for plywood segment. Ebitda is short for earnings before interest, tax, depreciation and amortization. For the MDF segment, the management had said that it will be taking further price hikes in order to offset raw material cost inflation and guided for 25% Ebitda margins.
So, in Q3FY22 earnings, one of the key things to watch out for is whether these price hikes were sufficient to protect further margin erosion.
Never miss a story! Stay connected and informed with Mint.
our App Now!!