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Home decor companies saw robust performance in the September quarter. Pent-up demand, aided by revival in the real estate sector, translated into double-digit volumes growth across product categories. However, this time around, wood panel makers and tile companies showcased better performance than pipe manufacturers, thus overtaking the latter on revenue growth and operating metrics.

"In Q2FY22, wood panel companies outperformed with revenue/Ebitda/profit after tax growth of 54%/60%/77% YoY led by strong volume growth across categories— plywood, laminates, MDF and particle board. Tiles too witnessed 35%/29%/38% YoY growth and healthy margins," analysts at Edelweiss Securities Ltd said in a report. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Investors would reckon that in the past few quarters pipe companies have been displaying impressive earnings growth. But in the September quarter, their performance was marred by elevated prices of raw materials and the delay in passing on the same. This weighed on their operating margins. 

The plastic pipes segment reported revenue/Ebitda/profit after tax growth of 24%/20%/27% y-o-y, but with poor operating margins, showed the Edelweiss analysis.

Another theme that has worked in favour of home decor companies is consolidation of the industry and thereby market share gains from the unorganised sector. Dealers channel checks by various brokerages show that smaller and regional companies operating in this sector have been struggling to survive post the coronavirus pandemic due to stretched working capital needs. Further, the steep rise in raw material costs due to global supply chain constraints has made their cost pressure worse. And the sharp rally in the share prices of these stocks captures this benifit, analysts said.

Apart from that, in recent quarters, companies in this industry have sharpened their focus on deleveraging, which is another sentiment positive, analysts add.

While home decor companies have managed to sail through the September quarter, going ahead, commentary on margins and price hikes would be key for these stocks.

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