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Published on 17/03/2021 9:40:37 AM | Source: HDFC Securities Ltd

Real Estate Sector Update - On a strong footing By HDFC Securities

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On a strong footing

In our recently concluded, two-day Cement & Building Materials conference, we hosted three cement companies, two plastic pipes companies, two tiles manufacturers in Morbi, two cement experts (from east and west regions) and seven cement dealers from across India. Across all three segments (cement, pipes and tiles), the commentary on demand was strong and a fact emerged that companies are taking price hikes to pass on cost inflation, thereby sustaining the strong margin in all three sectors. Please read along for the detailed key takeaways.

 

* Cement companies: We hosted Dalmia Bharat, Prism Johnson and Mangalam Cement. All of them noted that demand continues to remain strong in their regions. With non-trade demand rebounding, companies have been able to take a higher increase in non-trade segment (thereby correcting the gap with trade to INR 30-50/bag, which had earlier expanded to ~INR 60-100/bag) over the past one month. Dalmia stressed upon the improving its corporate governance standards and its vision to become a pan-India player over the next 3-5 years (Capex announcement to follow). Prism Johnson and Mangalam Cement also highlighted various cost reduction initiatives underway. Both the companies are also increasing their clinker capacities during CY20 through de-bottlenecking. Prism remained confident that the recent turnaround in the Tiles business is structural in nature.

 

* Cement dealers and regional experts: All of them noted that cement demand is strong in their markets (IHB, real estate and infra). East continues to lead with double-digit demand growth. They also detailed the price increases taken across both trade and non-trade segments and the general consensus was that the price hikes taken should sustain in March (peak demand month). Buoyed by good demand, advertisement and brand promotion activities are now close to pre-COVID levels. Technology usage has also increased post COVID, in terms of companies’ engagement with distribution channels.

 

* Pipes companies: We hosted Astral and Prince Pipes. Both suggested that the demand momentum (seen in 3Q) is sustaining in 4Q so far, mainly led by good demand from real estate and retail sales. The price-sensitive agri demand is being impacted on account of continued price increases. As the PVC resin prices continue to rise, smaller pipes players are losing market share (on elevated working capital). This, in turn, has helped larger players (top 7-8) to gain market share and to pass-on the cost inflation. Both the players remained bullish on their growth prospects.

 

* Morbi tiles companies: We also hosted promoters of two unlisted tiles manufactures from the world’s second-largest tiles production hub - Morbi. Both guided that India’s export momentum is sustainable owing to its good quality, competitive pricing and anti-China sentiments. While GCC remains India’s top export destination, the USA has become India’s second-largest export market. On the domestic front, both highlighted that real estate recovery has boosted domestic sales growth 3QFY21 onwards. While gas prices have surged in Morbi, the industry is able to pass on the same, riding on good demand.

 

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