HomeIndustry TrendsIncreased focus on furniture industry may bode well for adhesive makers

Increased focus on furniture industry may bode well for adhesive makers

Covid-19 is a big let down for all industries, even adhesive industry was not spared. Adhesive industry which was registering 7-8% CAGR for the last couple of years contracted by 1-2% during the last financial year, due to Covid-19 and subsequent lockdown. However, Covid-19 has thrown some opportunities for the industry which may determine the direction and quantum of growth of the industry in the coming years, thanks to changing focus of the government which in turn is due to emerging scenario world over.

Increased emphasis on furniture industry

Optimism for the industry stems from the special focus given by the government to furniture industry which is one of the main user industries of adhesives accounting for nearly 55% of the Consumer & Bazar segment of the industry. The Steering Committee for Advancing Local Value-Add and Exports (SCALE), chaired by Mahindra & Mahindra MD and CEO Pawan Goenka, recently recommended development of three-four integrated mega furniture hubs in proximity to ports for making India one of the key furniture exporters to the US, the EU and the Middle East. Already, the productivity-linked incentive scheme had been introduced for local manufacturing in this high potential sector.

India’s current share in the global trade of furniture is less than 1 per cent. The committee has said that this could be scaled up substantially over next decade with a mix of incentive schemes and fiscal measures for zero duty on imports of raw materials and clear and effective timber policy that expands the certified source of wood plantations in India.

Increased emphasis on furniture industry bodes well for the adhesive industry which may look forward to better times ahead.

Short term challenges

However, in the short to medium term the industry may face certain challenges, the main one being the raw material cost. “Input costs remain a significant challenge. We see these as peaking in the current quarter, and then gradually softening over the second half of the year. Going forward, we remain cautiously optimistic on a sustained demand recovery,” says Pradip Menon, CFO, Pidilite Industries Ltd. So, the pain may not be permanent one and we may start hearing positive news in the second half.

Decent growth in the recent past

The size of domestic adhesives and sealants is about Rs 14,000 crore and retail segment, that is, consumer and bazar segment, accounts for nearly 40% of the industry. The industry has been registering 8-9% since 2015, the last financial year being an exception when the industry showed a degrowth of 1-2% due to pandemic. On the positive side it should be noted that the decline was restricted due to increased demand from the furniture segment due to work from home, which led to higher demand for home furniture.

Industry experts optimistic

According to Bharat Puri, MD, Pidilite Industries, the trend has been extremely positive ever since the lockdowns have got lifted since the middle of June and has sustained for July and subsequently up till  now. “Yes, the cautious optimism is we are keeping our fingers crossed for this famous third wave. We are hoping it doesn’t happen at all. And if it does unfortunately happen, it doesn’t lead to widespread lockdown. Therefore, the cautious optimism. Otherwise, we do believe that there is a certain amount of pent-up demand. And as the economy recovers, you know that we correlate very well to GDP. As GDP comes back, I think we will see far better demand conditions.”

According to industry experts and analysts, India’s consumer adhesives industry is expected to clock 9-10% CAGR between fiscals 2021 and 2026 driven by economic recovery and growth in end-user industries. In particular, demand is expected to recover in fiscal 2022, growing at 14-15% on-year, on a low base of fiscal 2021, as the Indian economy recovers from the impact of the pandemic.

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