For companies operating in the organised sector, analysts expect the record high prices in PVC resin to provide a major fillip as consolidation gathers further pace
The price of polyvinyl chloride (PVC) resin, a key raw material in making pipes, continues to head northward. At ₹129 per kilogram, it has almost doubled compared to last year.
With effect from 1 March, PVC price has been hiked by ₹6 a kg, which is a 5% jump from its previous price, ICICI Securities Ltd said in a recent report. It should be noted that this is the third PVC price hike in Q4FY21, and totals to more than ₹12 a kg or 10.2%. In Q3FY21, prices were raised by ₹26, or 28.5%, said the report.
Global supply constraints on the back of shutdown of plants in the US due to cold wave, have resulted in surge in prices.
For companies operating in the organised sector, analysts expect the record high prices in PVC resin to provide a major fillip as consolidation gathers further pace. Small and regional pipe manufacturers, who are still struggling with working capital challenges, could face issues sourcing polymer at such a high rate. So, large companies with better balance sheets are likely to gain market share from companies in the unorganised sector.
Also, with rising input cost, expectations are that the final product prices will also rise eventually, leading to inventory gains.
In the December quarter, companies in the home decor sector posted impressive earnings performances. However, results of listed pipe makers stood out compared to tile manufacturers and plywood makers.
An analysis by Edelweiss Securities Ltd showed that plastic pipes category outperformed other home décor segments with revenue/EBITDA/profit growth of 39%/96%/143% year-on-year led by strong volume recovery across companies, inventory gains, cost control and rising operating leverage. Ebitda is short for earnings before interest tax depreciation and amortization.
"Realisations across companies increased led by higher raw material (PVC) cost. Furthermore, margins increased significantly on the back of reasons mentioned above, i.e. healthy volume growth, inventory gains, cost control and rising operating leverage," Edelweiss said in a report on 17 February.