Asset management firm Nuvama says the home décor industry continues to perform mixed, reflecting fluctuations in market conditions and industry-specific challenges following mixed first-quarter results.
In its first quarter fiscal 2025 earnings report for the home decoration sector, the brokerage firm forecast a strong outlook for tubular stocks but predicted uncertainty for wood panel companies.
The global brokerage highlighted that tile makers struggled with slow growth in the first quarter due to the general election, while higher lumber costs impacted wood panel makers.
Overall, Nuvama recommends purchasing Venus Pipes, Somany Ceramics and APL Apollo Tubes.
Uncertainty for wood panel manufacturers
According to Nuvama, the wood panel sector struggled this quarter, recording a decline of 8% and 27% year-on-year in both EBITDA and profit after tax, respectively.
Nuvama attributed this decline to rising wood prices and increased competitive pressure. Despite a 13% increase in sales due to new capacity expansions, the sector’s profitability has been significantly impacted, the brokerage said.
Strong performance through plastic pipes
On the other hand, the plastic pipes segment recorded strong growth. Companies in this sector reported a notable increase in Ebitda by 21% and PAT by 27% year-on-year, albeit from a low base.
Nuvama said this growth reflects strong demand in the real estate and infrastructure sectors. However, with PVC prices experiencing volatility, the second quarter of FY2025 could face challenges due to destocking and inventory losses.
Nuvama has identified Venus Pipes, Somany Ceramics and APL Apollo Tubes as the top picks in the sector.
Modest improvement in the tile sector
The tile sector, which was slowed by election-related economic downturns, was only able to increase its sales by 2.5 percent, while EBITDA fell by 2 percent year-on-year.
Companies in this space have resorted to discounting and other strategies to gain market share, impacting profitability. Despite these efforts, the sector’s performance remains under pressure.
Industry-specific challenges
The global financial management company said plastic pipe manufacturers are facing margin pressure in the tough competition for market share and are therefore foregoing inventory profits to maintain their competitive advantage.
Due to increased marketing and distribution costs and declining demand, tile manufacturers had to contend with lower margins.
However, plywood producers managed to stabilize their Ebitda margins by passing on high wood costs to customers. Medium density fiberboard producers reported their lowest margins in three years due to high wood costs and an oversaturated domestic market.
Nuvama Outlook
Looking ahead, the Nuvama report suggests a preference for the pipe sector due to strong demand across various segments.
The tile segment is expected to see a recovery as projects are nearing completion and exports are increasing.
However, due to high wood prices and oversupply, the wood panel sector is likely to remain under pressure, Nuvama said.
