Indian economy is in a transitionary phase where informal sector which was playing a dominant role in the economy is moving towards the formal one. The pace of transition is slow and is also painful. Many in the informal sector have lost their jobs and at the same time its not a smooth going for the formal sector too thanks to poor health of the economy in general and that of user industries in particular. This is particularly so in case of building materials industry which is mainly dependent real estate sector for its demand and the real estate sector is suffering from slowdown for quite some time.
This industry is mainly dependent upon real estate sector and exports for its survival and growth. However, the industry, faced set backs on both these fronts and along with other problems, is finding very difficult to maintain its growth momentum. Further, excess GVT (Glazed Vitrified Tiles) capacities in the Morbi region and among the branded players and setting up of incremental capacities in the southern region by some leading manufacturers have recently put additional pressure on GVT pricing amid the muted demand environment. Ceramics sector is largely dependent on new construction for demand as ceramic tiles and sanitaryware category in general would be the last ones to get refurbished (as it involves civil work and carries inconvenience as well). Thus, this industry’s growth will be largely decided by the health of realty sector and its unlikely that realty sector would wake up from its slumber so soon. Even if it does, demand for ceramics products would pick up with a time lag of 6 months to one year. So, year 2020 may not be any different from 2019 for ceramics industry in terms of demand scenario.
Wood Panel Industry
Wood panel industry consisting of products like plywood, MDF and laminates is slightly better placed than the ceramics industry, though both cater to the housing sector. Residential real estate sector’s unsold inventory is mounting and sooner or later it will have to be cleared (though gradually) and higher occupation of houses would naturally increase the demand for wood panel sector. Further, the industry should benefit from renovation/replacement demand and shift from unbranded to branded products led by improving administrative compliance.
With the unorganised industry grappling with issues like higher timber cost and working capital stress, the organised plywood sector is likely to outpace its unorganised counterpart in terms of growth. On the other hand, laminates may show low single digit growth. Crude oil price movement would decide direction of the raw material price for the industry.
Meanwhile, the MDF segment is expected to continue to grow in double digits aided by growing awareness and increasing acceptance. It is also expected to increasingly replace cheaper plywood with likely improvement in compliance levels. However, excess capacity will still remain an issue in 2020 also due to existing huge imbalance and also proposed capacity additions by some manufacturers. During the year, Rushil Décor is expected to commission its new MDF unit in South India which will be followed by another new plant by Century Ply in the North India in the first half of 2021.
Adhesives, waterproofing, etc
Growth in adhesive segment will largely be dictated by the growth in wood panel industry. Waterproofing business is expected to grow in double digits in 2020 too, aided by increasing awareness and acceptance. On the raw material front, VAM and chemical prices expected to remain muted in 2020.
Demand for independent houses in rural areas may remain muted but the sector may get boost from government sponsored projects like ‘Housing for All’ scheme. As the deadline for the PMAY is drawing closer (2022), pace of the implementation of the programme too would pick up. So, the demand for roofing products should be healthy in 2020.
Despite the economic slowdown in the country and sluggish growth in real estate sector, the plumbing pipe segment continues to grow in double-digits aided by the government’s increasing thrust on affordable housing, firm replacement demand and growth traction in niche product segments.
The industry should be able to sustain its growth momentum in 2020 too because of expected firm replacement demand and the government’s sustained thrust on irrigation, Nal se Jal scheme and affordable housing. With unorganised sector facing multiple problems of working capital, liquidity crisis and taxation compliance issues, organised players can look forward to more market share gains. However, even in organised sector there are some manufacturers like Jain Irrigations who are facing NPA issues and other brands may take advantage of the situation to grab the market share.
However, price may remain volatile and also at elevated level due to recent government’s decision to impose ADD on CPVC resins and also volume-based pricing introduced by polymer manufacturers.