Home decor companies performed well in the September quarter. Demand growth, aided by the revival in the real estate sector, translated into double-digit volume growth across product categories. However, wood panel makers and tile companies outperformed pipe makers, outperforming the latter on revenue growth and operating metrics.
“In Q2FY22, Wood Panel companies outperformed with Revenue/Ebitda/Profit after tax growth of 54%/60%/77% YoY (Y-o-Y), led by all categories- Plywood, Laminates, There was strong volume growth in MDF and particle board. , Analysts at Edelweiss Securities Ltd. said in a report, “Tiles also witnessed 35%/29%/38% year-on-year growth and healthy margins. Ebitda is short for earnings before interest, taxes, depreciation and amortization.
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Over the past few quarters, pipe companies have displayed impressive earnings growth. But their performance was impacted in the September quarter due to higher raw material prices and delays in further advances. This affected their operating margins. Edelweiss analysis shows that the plastic pipe segment reported revenue / EBITDA / profit after tax growth of 24% / 20% / 27% annually, but with poor operating margins.
Another theme that works in favor of home decor companies is the consolidation of the industry and thus, gaining market share from the unorganized sector. Checking of dealers’ channel by various brokerages reveals that small and regional companies operating in this sector are struggling to survive post the COVID pandemic due to increasing working capital requirements. In addition, a sharp rise in raw material costs due to global supply chain constraints has worsened cost pressures. Analysts said that further sharp rally in the prices of these stocks captures the gains.
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