Markets
Wood panel makers continue to face headwinds after a mixed Q4FY23
Summary
- Industry participants expect timber prices to remain high going forward resulting in near-term margin headwinds, even though softening chemical prices may offer some respite
Major wood panel companies reported subpar operational performance for the March quarter (Q4FY23). High raw material costs and an unfavourable geographic mix translated into steep year-on-year Ebitda margin contraction for companies in the MDF and allied segment such as Greenpanel Industries Ltd and Century Plyboards Ltd. Ebitda is earnings before interest, tax, depreciation and amortisation.
Going ahead, the margin outlook does not seem too bright. Industry participants expect timber prices to remain high going forward resulting in near-term margin headwinds, even though softening chemical prices may offer some respite, according to analysts at ICICI Securities Ltd. "Also, higher imports of MDF and additional domestic capacity being commissioned will thus likely sustain near-term demand and margin pressure for organised players," the brokerage said in a report dated 4 June.
Plus, companies have not been able to take significant price hikes, due to high imports. MDF import volume in India has increased lately. The average monthly run-rate of imports in Q4FY23 at around 21,944mt per month was near the pre-covid levels of FY19 of around 22,525mt, added the ICICI report. This is expected to pose near-term demand and pricing headwinds for domestic manufacturers as the landed cost of imports is around 20% lower than domestic brands, cautioned the domestic brokerage house.
However, working capital discipline in these companies offers some comfort. Their management expects this trend in working capital to continue.
Sustained momentum in residential real estate sales bodes well for their volume growth, though a meaningful revival in operating margins would dictate the future course of stock performances.
That said, trends in their stock returns have been mixed. In this calendar year so far, while shares of Century Plyboards and Greenlam Industries have risen by over 10% each, Greenpanel Industries has lagged with negative returns of nearly 7%.
