The home decor sector is not in its top form. General election, heatwaves and volatility in raw material prices hit demand for building material products leading to a muted start to FY25.
The industry’s performance in the June quarter (Q1FY25) was a mixed bag. Plastic pipe manufacturers fared well, with aggregate Ebitda and profit after tax (PAT) up 21% and 27% year-on-year, respectively, aided by a low base, according to Nuvama Research. In comparison, Ebitda and PAT for ceramic tile makers, declined by 2% and 11%, respectively.
A slowdown in real-estate demand with excess domestic capacity pushed companies to offer schemes and discounts to gain market share. Wood panel companies saw Ebitda fall by 27% and PAT by 8%, showed the Nuvama data. Elevated timber prices and higher competitive intensity was a drag on earnings.
The pain is not over. Seasonal weakness due to monsoons can adversely impact the September quarter (Q2FY25) results of listed home decor companies. Further, for plastic pipe companies, the destocking/restocking of dealer inventories depends on how poly vinyl chloride (PVC) prices behave.
“Channel partners (dealers) are currently working with low levels of inventory in anticipation of further PVC price fall. However, with anti-dumping duty likely to get imposed and demand expected to revive in H2FY25E, dealers are likely to resume stocking inventory from the end of September 2024,” said Yes Securities report dated 11 September. It further added that plumbing demand has been sluggish since the commencement of FY25, and demand from the infrastructure segment has been muted since the election.
Demand for ceramic tiles could improve as the pace of residential property launch picks up pace in the second half of FY25. That said, realizations in the domestic market could remain muted due to weak exports and looming threat of anti-dumping duty on Indian tile products by the US.
The recovery in earnings for wood panel companies is likely to be gradual amid an unfavourable supply-demand scenario and as timber prices are expected to stay high in the near term. Plus, higher ocean freight cost due to the Red Sea crisis may weigh on the exports outlook of wood panel companies.
To be sure, with midcaps being the flavour of the season notwithstanding frothy valuations, home decor stocks have benefited from the upbeat sentiment. In the past six months, shares of Finolex Industries Ltd, Supreme Industries Ltd, Greenply Industries Ltd and Century Plyboards Ltd have rallied 25-45%, beating the Nifty500 index. However, caution is warranted now given the bleak near-term earnings outlook of the sector.
