Growth in the building material sector, which has been struggling over the past 3-4 years due to issues like demonetisation, RERA, GST and the NBFC funding crisis, would now need to cope with the COVID-19 impact.
According to ICICI Securities, “The sector’s growth, which has already been substantially impacted due to muted real estate growth over FY17-FY20, would possibly witness further deceleration with renovation demand likely to shrink in the near term.”
Within the space, we expect the plumbing pipe segment to be relatively less impacted followed by the adhesive segment while categories like wood panel, tile and sanitaryware seem likely to witness further pressures on growth in these testing times, said Nehal Shah, research analyst, ICICI Securities.
Pipes followed by adhesives to be relatively less impacted. Categories like wood panel, ceramic tiles and sanitaryware are largely classified as discretionary spends. They are thus likely to see deferment of demand due to expected decline in renovation/refurbishment activity in the near term due to COVID-19 outbreak.
However, categories like plumbing pipes and adhesives, which are non-discretionary categories (to an extent), may get less impacted in the near term.
While prolonged lockdowns in several states on account of COVID-19 would impact the entire building material sector, the organised plumbing pipe segment is likely to be relatively less impacted due to: 1) the ongoing consolidation in the PVC/CPVC pipe segments (big getting bigger); 2) strong growth in affordable and mid-income housing projects; and 3) sustained replacement (need-based) to the traditionally used GI/CI pipes.
In March 2020, demand in metros and key tier-1 cities has seen some deceleration with calibrated lockdowns, particularly in the second fortnight of the month. “Some dealers are willing to let go of their annual turnover discounts and are instead resorting to destocking or lean inventory citing expectations of demand slump. Also, retail sales is trending lower with less footfalls largely on account of deferment of refurbishment demand, said Jigar Shah, research analyst, ICICI Securities.