Building material - Outlook CY21: On comeback trail - ICICI Securities

The organised building material sector is likely to be on a strong comeback trail with branded companies expected to report healthy volume growth/earnings in CY21 driven by: 1) low base of last year, 2) strong pent-up demand in renovation / refurbishment segment, and 3) impressive pick-up in secondary sales in real estate sector post Covid. In the branded categories space, we expect growth recovery in CY21 to be led by: 1) the plumbing pipe segment (expectations of accelerated consolidation in PVC/CPVC pipes post Covid), 2) tile segment (driven by impressive market share gains from Morbi players who are incrementally focusing on exports post Covid) and MDF (on the back of higher demand for modular furniture (MF) vs organised carpentry, and 3) expected increase in MF shipments with India likely becoming a manufacturing hub replacing China).

- Outlook CY21: Branded plumbing pipe, tile and MDF categories are likely themes to outperform in CY21. Branded categories like plumbing pipes, MDF and ceramic tiles seem poised to outpace the other building material categories in terms of volume growth recovery. We also expect other categories to report healthy growth led by lower base of last year. Recovery in adhesives / construction chemicals, plywood and laminates (more dependent on growth in secondary real estate market or refurbishment/renovation demand) is likely to be more visible than in the sanitaryware segment, which derives a high percentage of growth from new construction activities.

- Ceramic tiles: While the ceramic tile category also derives high percentage of growth from new construction activities (which may take time to recover), the branded ceramic tile players are likely to witness impressive volume recovery driven by market share gains from the Morbi players who are focusing incrementally on exports, which has seen exponential surge post Covid.

- Plumbing pipes: Accelerated consolidation in the PVC/CPVC pipe segment post Covid, sustained replacement demand and opening up of opportunities in the underground drainage system and water storage tanks space in India, are likely major catalysts for branded plumbing pipe players in CY21.

- Wood panels: Gradual liquidation of high inventories in real estate sector resulting in higher rate of occupation of premises, and pent-up demand in renovation, would aid recovery in the plywood/laminates segment. MDF category on the other hand is expected to report robust growth in CY21 led by: 1) increasing demand in India and opening up of export opportunities post Covid, 2) increasing replacement to cheaper plywood, and 3) import substitution on expected anti-dumping duty on thin MDF and likely countervailing duty on all MDF imports.

- Adhesive/construction chemicals: Increasing awareness and acceptance, and firm pent-up demand in maintenance and DIY categories in particular would drive decent growth in CY21.

- Sanitaryware: The sanitaryware category, which derives a high percentage growth from new construction activities in the real estate sector, may witness relatively slower recovery than the other building material categories.

Source : Equity Bulls

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