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We attended the Matecia Building material exhibition, in which 70 plywood and MDF, 50 laminates, and five deco veneers companies from the wood panel industry participated. This was an interesting expo, as it showed the growing desire for home improvement/upgradation in India. Our key takeaways from the exhibition are – a) Mid-size and regional plywood brands (such as Archid, Austin, Duro, Virgo, etc.) are focusing on brand building, adding new products and expanding distribution network, b) There is growing demand for pre-lam and plain MDF; huge traction was seen at stalls of Action Tesa, Rushil Décor and Greenpanel, and c) In laminates, innovative designs and managing high number of SKUs are what is differentiating larger players from smaller ones. Moreover, our conversation with brand owners and channel partners also revealed – i) demand from tier 2 and 3 cities is outpacing demand from metros, ii) timber availability continues to be a challenge; however, most believe it to be a short-term issue, and iii) trade practices in the industry have improved significantly over the last few years due to GST and e-way bills. Wood panel is our preferred space in building materials with BUY rating on Century Plyboards, Greenpanel, and Greenply; we maintain HOLD rating on Greenlam on rich valuation.

* Mid-size and regional brand Plywood brands are focusing on branding and network expansion: The exhibition was mainly organised for dealers, wholesalers, and decorators of interior products, and indeed it saw huge attendance from them. Mid-sized plywood companies such as Austin, Virgo, Archid, Duro etc. are investing in building their brand, adding new products, and expanding their distribution network. These brands already have a wide range of products catering to all segments of the market with their product basket diversified into laminates, deco veneers, floorings, doors, etc. Besides this, many regional brands, based in Haryana and Punjab, have also started investing in branding with the aim of becoming national players. This shows huge optimism among brand owners, distributors and dealers, which is reflecting the strength of underlying demand for home improvement/ upgradation in India.

* With increasing adoption of MDF and particle board by trade partners, penetration to gain pace: Demand for particle board and MDF is gaining significant traction on account of growing consumption in the furniture sector. Wholesalers in metros and tier 1 as well as tier 2 cities are getting into particle board trade, which is a sign of expanding product reach. The revenue mix of any retail store is c. 40-50% plywood, 20-25% laminates, 5- 10% veneers, 8-10% MDF and particle boards, and the rest adhesives and allied items. The share of MDF and particle board in retail is expected to significantly increase due to growing demand from OEMs and retail (individuals).

* Laminates – innovative product designs and managing high number of SKUs is key to leadership: As home improvement demand strengthens and supply of laminates’ raw material improves, the number of laminate brands launching new designs has significantly increased. The Indian laminates industry is c. INR 90bn in size, of which domestic size is INR 65bn, and exports INR 25bn. Our interaction with small and mid-sized laminate brand owners revealed their aspirations to tap the export markets. There’s high competitive intensity among mid-sized laminate players and owners believe the key differentiator is having innovative designs and managing high number of SKUs, which the larger players are successfully doing

* Channel check - demand picks up after a few months of weakness: Demand was subdued in July and August on account of slowdown in construction activity and a seasonally weak period. In September, however, demand picked up ahead of the festive season. Decorative laminates and veneers are witnessing higher demand over other product categories; many laminate brands introduced newer SKUs to their channel. Softening of raw material prices in laminates kept prices stable. In plywood, timber prices continue to be high; but given muted demand in July-August, the brands did not announce any major price hikes. Given the challenges in procurement and pricing of timber by smaller and regional players, large leading brands are expected to continue to gain market share.

* Recommendation: We continue to maintain our positive bias on the wood panel sector over ceramics on account of reasonably strong underlying demand coupled with stronger balance sheets. Our preference stays Greenpanel Industries, Century Plyboards (only company with entire wood panel offering) and Greenply (attractive valuation). We maintain HOLD on Greenlam on fair valuation.

* Other key highlights: i) Other categories such as PVC laminates board are expected to see recovery in demand, which was impacted by higher PVC resin prices (PVC prices have corrected sharply c. 40% YTD). ii) Laminates are witnessing higher growth in tier 2 & below cities, replacing wooden painting and polishing. iii) Leading brands are focusing on launching higher abrasion laminates. Action Tesa launched ‘Abraze’ highly scratch resistant pre-laminated MDF. iv) Automation in furniture manufacturing is boosting demand for MDF.

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