Investors in a slew of listed home décor or building materials stocks are sitting on losses, with shares sharply correcting from their respective 52-week highs. The Street is miffed as these firms continue to struggle with challenges ranging from muted volumes, weak realizations, or rising input costs.
The recently concluded September quarter (Q2FY25) was more of the same. A sluggish demand scenario, along with an extended monsoon and lower infrastructure spends, weighed on quarterly performance, leading to earnings downgrades for FY25.
On an aggregate basis, 13 building materials stocks under the coverage of BOB Capital Markets saw muted year-on-year revenue growth for the seventh consecutive quarter, up a mere 1.3% in Q2FY25. Ebitda was down 20.9% on-year in Q2FY25 due to severe margin pressure on account of heightened competitive intensity in a weak demand environment, said BOB Capital Markets report on 19 November. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
The outlook
Now, the question is whether there is more pain ahead or this is the bottom.
Going by the management commentaries, things are likely to pick up in the H2FY25. A constant fall in polyvinyl chloride (PVC) prices in Q2FY25, prompted pipe dealers to de-stock, hurting volumes. The movement of PVC prices is key for plastic pipe companies because de-stocking/re-stocking of dealer inventories depends on how PVC prices behave. In H2FY25, PVC prices are expected to inch up, plus with the imposition of anti-dumping duty (ADD), dealers should resume re-stocking.
According to Nuvama Research, the initiation of preliminary ADD on PVC resins is positive as this could yield an 8-10% price hike, resulting in inventory re-stocking.
The tile industry’s volume growth in Q2FY25 was constrained by heavy rains and reduced exports from Morbi. That, coupled with muted residential real estate launch momentum, added to concerns. The management of key listed tile companies Kajaria Ceramics Ltd and Somany Ceramics Ltd are confident of achieving a high-single-digit volume growth for FY25, with major growth expected from H2FY25 onwards.
On the flipside, realizations are likely to remain under pressure until exports recover sharply. Further, a potential risk to Indian tile exports could arise from the US government imposing an ADD on Indian tiles products.
In the wood panel industry, while plywood companies managed to take price hikes aiding margins, MDF companies could not take price hikes due to a highly competitive intensity amid the rise in timber prices. The oversupply in the domestic market is also playing spoilsport for wood panel companies in Q2FY25.
In short, some of these issues for the home décor sector may iron-out in H2FY25, but earnings revival may not be broad-based.
