Still looks less than cosy for home decor stocks

Wood-panel makers could struggle with the double whammy of bleak volumes and tepid margins.
Wood-panel makers could struggle with the double whammy of bleak volumes and tepid margins.

Summary

  • Listed plastic-pipe makers are expected to report double-digit volume growth and margins in Q4, but ceramic-tiles and wood-panel companies face a host of challenges.

For home décor companies, the March quarter (Q4FY24) earnings season will bring mixed results. Listed plastic-pipe makers are expected to steal the show with better volume growth and margins than ceramic-tiles and wood-panel companies. Increased consolidation and robust demand, driven by plumbing and agriculture use in a seasonally strong quarter, are expected to boost volumes.

Supreme Industries Ltd, Astral Ltd and Finolex Industries Ltd are likely to post double-digit volume growth in Q4 FY24. The benefits of channel re-stocking ahead of the anticipated increase in poly vinyl chloride (PVC) prices from April should also be visible in Q4 earnings. The potential imposition of an anti-dumping duty on PVC imports is the key factor to look forward to in the near future. This could raise PVC prices further and extend channel re-stocking, according to Nuvama Research.

On the other hand, ceramic-tiles companies are having a hard time mainly because of subdued demand growth. ICICI Securities is pencilling in volume growth of 8% and 5.2% for Kajaria Ceramics Ltd and Somany Ceramics Ltd, respectively. Amid elevated competition, and as companies partially pass on the benefits of lower gas prices, realisation could see a moderate dip. However, margins could get a cushion from operating leverage.

Wood-panel makers, meanwhile, could struggle with the double whammy of bleak volumes and tepid margins. “The plywood segment is likely to log low- to mid-single-digit growth year-on-year. In the MDF (medium-density fibreboard) segment, companies have been aggressively pushing volumes in the domestic market with incentives ranging from 5-6% to gain market share. This could hit their Ebitda margin during Q4FY24," said analysts at Emkay Global Financial Services Ltd.

All of this comes at a time when timber costs are elevated. There is also a near-term overhang for the MDF sector, thanks to a one-year delay in implementing Bureau of Indian Standards (BIS) quality norms, which could result in higher imports. MDF volumes in Q4 are expected to be hurt by rising imports and an increase in production capacities.

Residential real estate is booming, with stellar bookings trends of late, but the demand for late-stage building material products such as ceramic tiles and wood panels has a lag.

Meanwhile, many home décor stocks have fallen steeply from their 52-week highs. Weaker-than-anticipated earnings trajectories and frothy valuations have been dampeners. Also, many of these stocks are mid- and small-cap counters, which tend to fall faster than large caps during times of increased market volatility such as the recent correction. Thus, a sharp rise in these stocks needs to be backed by meaningful earnings growth.

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