HomeIndustry TrendsDemand is growing but cost is a concern

Demand is growing but cost is a concern

Year 2022 started with the threat of Omicron getting out of hand but fortunately the third wave was short lived. Though the cost inflation was still a matter of concern everyone believed the situation would roll back to normalcy soon, breakout of war between Russia and Ukraine threw all calculations haywire. It was initially believed the war won’t last more than few weeks but fact is that it is still dragging on pushing many economies to brink of economic collapse. With cloud of uncertainty hovering all around people viewed future with pessimism. Meanwhile, we at Sawdust tried to gather the views of industry captains in building materials industry about what transpired during the first quarter of the current FY and how it will pan out in the next few months.

Demand has grown sharply

Of course, the biggest concern for everyone was the rising cost which eventually may puncture the demand momentum and push the economy towards recession. But surprisingly the reaction of the industry people was not so pessimistic. “We are happy to see the cement consumption in this current quarter, the reported quarter April-June quarter continuing the momentum after a strong performance in Q4, month after month we saw improvement in demand in cement consumption. The good part about this cement cycle is that urban housing has picked up in the last few quarters,” says Atul Daga, Executive Director and CFO, UltraTech Cement. However, ACC another major cement manufacturer was affected by the rising costs. “The April to June 2022 quarter was impacted by rising global fuel costs and related inflationary impacts,” says Sridhar Balakrishnan, Managing Director and CEO, ACC.

On the other hand, wood panel industry turned out better performance. “Our plywood and particleboard segments revenue records 100% year-on-year growth while laminates and MDF segments revenue grew 86% and 71% year-on-year respectively for the quarter,” says Sanjay Agarwal, Managing Director, Century Plyboard Company Ltd. Asian Paints too saw robust demand for decorative paints in Indian markets. “The domestic decorative business experienced good consumer demand and recorded stellar revenue growth for the quarter. The volume growth registered in the quarter is one of the highest in the last six quarters,” said Amit Syngle, Managing Director & CEO of Asian Paints Limited. Kajaria Ceramics, the largest tiles manufacturer too witnessed full capacity utilization despite energy supply disruptions and unprecedented increase in energy costs.

But cost continues to rise

It doesn’t mean that the industry was not impacted by the rising raw material costs. Inflation has not spared anyone in the economy – some have been affected less, some more. According to Daga, production costs have risen about 7% in the first quarter.  In fact, tackling cost inflation is the main task for most of them presently. “We were able to mitigate part of this impact through our efficiency project ‘Parvat’. The cost reduction journey will be further accelerated with commissioning of waste heat recovery projects in Jamul, Kymore & Ametha plants taking the share of green power to 15%,” says Sridhar Balakrishnan.

Non-metro cities in focus

Interestingly, in the first quarter growth came mainly from non-Metro cities. “As far as our company is concerned we are growing much more in the tier two, tier three at the moment and that is where we are putting in our expansions or new areas, new towns, new people being hired out there, new dealers being appointed out there, all those growth inputs are happening in tier 2 actually,” says Sanjay Agarwal. Ashok Kajaria, CMD, Kajaria Ceramics, also concurs with this view. “At present we are witnessing a greater momentum in the tier II and below markets vs the metros,” says Kajaria.

Despite the short term hiccups, there is near unanimity among the industry captains about the long term prospects of the industry. According to Daga, “The number of new project launches has also been on the rise, which will benefit cement of course. Large infrastructure projects like high-speed Mumbai-Ahmedabad train, coastal roads, Jewar Airport, Mumbai Airport to name some of them are leading to an overall growth in cement demand in the infrastructure space. With a lot of ancillary projects getting seeded which generate employment, income generation, and of course, housing growth.” Kajaria too has similar view while he says “With India’s GDP growth pegged at 6% to 8% over the next couple of years, the domestic tile industry could in turn witness a similar demand growth, especially driven by the government’s push for investment in infrastructure and low-cost housing.”

So, the industry is presently battling to overcome the short term challenges to reap the benefits of long term growth which nevertheless is not a low hanging fruit.

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