Both building material and home décor sectors have seen demand revival during the post lockdown period in 2021 and most of the manufacturers in the organised sector have almost reached pre-covid level of production. But biggest question doing the rounds is how long this recovery will sustain? Will the third wave or new variant, Omicron, puncture the revival? Since the future is blurred many keep their fingers crossed and also keep their expansion plans on hold for the time being. Here, we are trying to analyse the prospects of each industry in the new year.
Infrastructure and affordable housing to drive demand for cement
Cement manufacturers expect a demand uptick in 2HFY22 and are hoping to report 6-8% YoY growth in volumes. According to them, infrastructure and affordable housing (urban and rural) would continue to drive demand. South-based players are hopeful of better volumes after rains subside in Tamil Nadu. The lifting of the sand-mining ban in Bihar augurs well for demand while the construction ban in the NCR region seems transitory and likely to be lifted soon. Demand in Western and Central regions is stable MoM driven by infrastructure and rural housing respectively.
If there is further big push on infrastructure and housing in the forthcoming budget it will be an icing on the cake. Also, if the Monsoon is good it may help to further boost rural demand.
However, coal/pet-coke prices which are already at elevated levels may play truant. Increased diesel price may affect their logistic cost. Some manufacturers fear that constant price hike to pass on the inflation may eventually have its impact on the demand for the commodity. Most of the manufacturers, however, don’t see any comfort on inflation front in the first half of the year.
Tile manufacturers face headwinds
Non-availability of containers (for exports) and prevailing high freight rates are affecting export of tiles from India to other countries which in turn is forcing the tile manufacturers to divert the production to domestic market to tide over the situation. However, the end users of tiles may not be benefited by the diversion of production to domestic market as the dealers are taking advantage of the situation by asking for deep discount from the Morbi manufacturers. Also, Morbi manufacturers have started cutting down production and this condition may continue till the situation improves. Also, nearly 30% of the units operating in Morbi have temporarily stopped production.
Anti-dumping duty by Europe, Taiwan and GCC in recent months have only compounded the problem of exporters. However, the impact of anti-dumping duty in Europe is expected to be only to the extent of 8-10%.
The Morbi manufacturers expect the international container shortage problem to normalize by February 2022. Post that, exports are expected to pick up from the current level of Rs120-150bn/annually to Rs200bn annually.
Decorative paint makers keep their fingers crossed
For the paint industry, period from April to mid-June is considered to be busy season which was complete washout for the industry during 2020-21 and to a lesser extent in 2021-22. Now it should be seen how the busy season of 2022-23 will pan out for the paint manufacturers as the recent reports show resurgence in Covid cases in recent days. However, some experts also say that the pandemic in its third wave may peak in February itself. In that case, paint manufacturers like many other industries may heave a sigh of relief.
Sustained cost inflation is another cause for worry for the paint manufacturers. In the past 12 months, paint companies have seen unprecedented inflation in key raw materials, such as crude-linked derivatives, titanium dioxide (TiO2), vegetable oils, phthalic anhydride, monomers, and solvents. This is driven by commodity inflation and disruptions in the supply chain during COVID.
If the feedback from some of the paint dealers is any indication, the paint manufacturers are likely to begin the new year with another price hike of 5-6% which if happens will be a third price hike in as many months. One need to wait and watch to see whether the demand continues to grow despite rising prices.
Also, during the year we may see a new player in the industry in the form of Grasim Industries who aims to capture at least 20% market share in the foreseeable future. Ultimate beneficiary of such actions is the consumer who will have multiple choices to deal with.
MDF market worth watching
Wood panel industry was one of the star performers in building materials and home décor industry recording double digit growth. Within the wood panel industry, it was medium density fibreboard industry which outperformed other segments. Manufacturers have taken price hikes to take advantage of booming demand and limited supply. Though similar situation may prevail in the initial period of 2022 also, multiple capacity additions, both Greenfield and Brownfield, will also result in increased supply in the market which may help to smoothen the price curve. However, this may happen in the latter part of the year.
However, there are some factors which may be common to all industries which may ultimately decide its direction, such as – how soon the pandemic will be brought under control, budget proposals, scenario on inflation front and Monsoon. If these factors move on expected direction, then growth can return on a sustained path.