Home / Markets / Mark To Market /  For investors in home decor stocks, Q2 to be a forgetful quarter

Investors in home decor companies should brace for subdued earnings performance in Q2FY23. Demand across segments was considerably weak in July and August. It did see an uptick in September, but that may not be enough to move the needle on earnings for the quarter.

A month-long shut down in the country's tile manufacturing hub Morbi, in Gujarat, hit demand for tiles both in domestic and export markets. In the wood panel segment, demand was subdued due to a high base. In the plastic pipes segment, the fall in PVC prices led to channel destocking and fall in both volumes and margins.

In a report dated 4 October, analysts at Edelweiss Securities Ltd said that revenue for the home decor coverage is expected to be flat year-on-year as higher realisation in tiles/wood panel space is likely to be offset by weak volumes across segments and a sharp fall in plastic pipe realisations.

The report added that overall margins are likely to drop 400bps year-on-year (y-o-y) and 60 basis points (bps) sequentially due to inventory losses in pipes, high gas cost in tiles and rising timber costs in plywood and MDF. One basis point is one hundredth of a percent.

Among the three segments, earnings of plastic pipes manufacturers are likely to be the most impacted. "Till mid FY22, the scenario in the PVC pipes industry was favourable, but in last one year, it has seen some tough times, hurt by deteriorating PVC prices (down ~20% in 3-months and ~40% in 12 months)," said a report by Systematix Shares and Stocks (India) Limited.

Margin weakness seen in Q1FY23 is likely to intensify in Q2 for Finolex Industries, Prince Pipes and Supreme Industries, on significant inventory losses, said the domestic brokerage house.

Meanwhile, shares of companies in the home decor space are trading considerably lower levels than their recent 52-week highs. Many stocks in this industry belong to the mid- and small-cap space, which tend to see steeper correction than large-caps in times of market turmoil.

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