Published on 19/04/2021 11:33:53 AM | Source: ICICI Securities Ltd

Wood panel sector Update - Headwinds galore for the unorganised wood panel space By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Sector Report #ICICI Securities #Wood Sector

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Headwinds galore for the unorganised wood panel space

We expect unorganised players in the wood panel space to get significantly impacted in the near term due to sharp rise in input costs and shortage of key raw materials (RM). Due to steep rise in RM costs, the unorganised wood panel sector is facing plant shutdowns and lower order offtake, especially in the plywood and laminate segments.

In laminates, prices of phenol, melamine, formaldehyde and craft paper have risen significantly, while in plywood segment timber and face veneer prices have also risen. In the case of MDF/Particle boards, importers are struggling due to higher freight costs and container availability. We believe branded organised players with strong balance sheet and deep pockets are likely to absorb the near-term shocks arising out of the recent spike in input costs and thus gain market share. Also, the ongoing second Covid wave and likely restrictions / lockdowns are likely to add to the woes of the unorganised players.

Top picks: Greenpanel Industries, and Greenply Industries


* Plywood segment: Timber and imported face veneer prices have risen sharply. Due to the recent unrest in Myanmar, face veneer prices have doubled. Higher sea freights have also made things worse. Domestic timber prices too have increased sharply in last quarter. While Greenply Industries is sourcing its entire face veneer requirement from its existing plant in Gabon, Century Plyboards has recently opened up its own plant there to source the same material.


* Laminate segment: Plant shutdowns and sharp price increases witnessed in the recent past. RM costs for laminate manufacturing have reached a level where half of HPL (high pressured laminate) factories have decided to shut down. Some of the laminate manufacturers are not accepting incremental orders due to shortage of materials. In February/March, laminate plants are estimated to have operated at only 60%/40% respectively as the industry continued to face oversupply situation. Organised laminate players have announced price hike of ~Rs80/sheet in 1mm category in Q4FY21, while semi-organised players have increased prices in the range of Rs85-100/sheet. While sharp increases in prices of key inputs like phenol, formaldehyde, paper, melamine, tissue, craft, etc. have impacted their margins and working capital requirements, the ongoing second Covid wave poses further threat.


* MDF/Particle board segment: Importers of MDF/Particle boards are facing higher sea freight costs and container availability issues. Post Covid, imports / exports have been hit by consistent issues of non-availability of containers while higher crude prices led to higher sea freight costs, which have impacted imports of MDF/Particle boards. MDF imports used to form 20% of the overall consumption preCovid. Second Covid wave with restrictions/lockdowns is likely to scale up the usage of modular furniture and in turn improve demand for MDF/Particle boards. We believe this is likely to benefit MDF players like Action Tesa, Greenpanel Industries, and Century Plyboards.


* Players with strong balance sheet and deep pockets to survive and gain market share in these uncertain times. Post Covid first wave, we have seen top organised players significantly improving their balance sheet by maintaining strict working capital discipline, which in turn has improved their cashflow management. This has led to significant reduction in debt levels. We thus believe organised wood panel players with strong balance sheet and deep pockets are likely to absorb the near-term shocks arising out of the recent spike in input costs and thus gain market share. Our top picks in wood panel space include Greenpanel Industries, and Greenply Industries.


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