After Stellar Rebound, India’s Building Material Firms Offer Upbeat Outlook
India's building material makers, having seen a near-complete washout in early phases of the pandemic, are seeing a spurt in demand as Asia's third-largest economy rebounds. And they are even more upbeat about growth in the coming quarters.
"We have not seen this kind of demand scenario after 2012," said Ayush Bagla, executive director at Cera Sanitaryware Ltd., one of the largest firms in the category.
Kajaria Ceramics Ltd., the nation's largest ceramics and vitrified tilemaker; Supreme Industries Ltd., a maker of plastic furniture to pipes; and Astral Poly Ltd., a building pipes and adhesives manufacturer, also saw volumes and growth rebound in the quarter ended December.
A growing building materials industry, a key supplier to the real estate sector, only reinforces a quicker-than-expected recovery in consumption after two back-to-back quarters of economic contraction. Smaller cities are driving demand as the nation has almost fully reopened from one of the strictest lockdowns in the world and the number of active cases of Covid-19 dropped.
Here's what building material companies had to say about the rebound, demand and outlook:
Even after being back to three shifts from December, demand stayed ahead of their ability to supply, Bagla said. "January was a fantastic month and all indications for the balance two months of Q4 (ending March) and at least the next two-three quarters are very strong."
The company saw revenue from all key segments—plastic pipes, industrial products, packaging material and consumer products—grow in the October to December period. And demand rose from rural markets and tier III and IV cities.
"The demand for furniture and material handling products was higher compared to the previous year," MP Taparia, managing director, said in a post-earnings statement. "With a better offtake of consumer durables, the company enjoyed good demand for its industrial components business."
The tilemaker volumes rose in double digits in the third quarter, with healthy demand from tier I to tier III cities, and a recovery in the metros, according to a company statement.
"As far as the demand is concerned, it's positive. Every month, it's positive," Ashok Kajaria, chairman and managing director, was quoted as saying.
The company attributed a surge in sales of its pipes to a mix of pent-up demand and reopening business activity in the metros.
"We have not only grown in value but also in volume by 15%," Sandeep Engineer, chairman and managing director at Astral Poly, said during the company’s analyst call.
Demand for CPVC pipes was excellent in the third quarter and the company expects it to accelerate in the ongoing quarter, CFO Hiranand Savlani said in the call. "That is what we are getting the same from the January numbers. So we are very positive."
Cera increases prices of its sanitaryware and and faucets by 5-7% and 8-10%, respectively, because higher raw material prices in the third quarter. And it's the second straight hike in prices two quarters, after August's 3-5%. Sanitaryware and faucetware contribute 73% of Cera's overall revenue.
Supreme Industries increased prices by 25% in the third quarter, said Taparia, adding that the company saw demand resistance from the agriculture segment despite the hike. Resin prices may soften by March.
Astral Poly doesn't expect prices of PVC to come down until the April-June quarter. "Right now, the polymer price has gone up abnormally high. That's why you see all the poly—PVC-dominated companies are giving crazy top line growth because prices have gone up by almost 70%, 80%," Savlani said.
Bagla said the highest demand in eight years is "way beyond their ability to supply" not only in the third quarter, but also in the next two to three quarters. "This, even though we are back on a three shift basis from Dec. 22 and our outsourcing partners in India and abroad are working on a full-steam basis."
The tilemaker has guided for 20-25% growth in sales volumes. It also plans a a capex worth Rs 150-200 crore for the next financial year.
Kajaria said he is confident of covering at least 100-150 Lok Sabha constituencies in FY22 as that will be the next driver of growth. The company, however, cautioned of margins tapering in the ongoing quarter as prices of some of the raw materials have risen.
While the company didn't offer any growth guidance for the fourth quarter or the year ahead, it said the business is better as compared to a year earlier. "I can only share one number that last year in January-March, the company had a sale of Rs 1,403 crore. This year, in the current position, our business is better than Rs 1,403 crore," Taparia said.
The company is bullish about its adhesives business in the coming quarters. "So with all the confidence, I can say that adhesives business is back on channel. We have a complete grip on this business, and we are completely aligned to take this business to new heights of growth in top line and the bottom line," Engineer said.
According to CFO Savlani , there's room for expanding the margins of the adhesives business in the next two to three years.
The company's pipe business is also in its expansion phase and can maintain a 15-16% margin in the four to five years, Savlani said.