Shares of Greenpanel Industries and Century Plyboards have managed to outperform the benchmark equity indices amid the ongoing bull run since the lows of March 2020. JM Financial believe that these players will continue to deliver a robust return to investors, citing gain in market share for larger firms in the near term. Where Greenpanel Industries has rallied 795% to Rs 265.70 on September 7, 2021 from Rs 29.70 on March 24 last year, Century Plyboards (India) has gained 296% to Rs 414.50 during the same period.
The domestic brokerage firm highlighted seven reasons which may continue to support the sector going ahead.
After almost a decade, market participants have highlighted that they are experiencing strong demand for good quality plywood. In a recent survey by Ply Reporter, there is a clear spurt noted in demand for composed core plywood, calibrated plywood and genuine waterproof plywood by the retailers in developing markets. Dealers incrementally prefer to work with manufacturers who have ‘Mat Pressing’ process with core composers and a good brand name. As per the ply reporter survey, the market share for the composed core and calibrated plywood category has gone up from 3% in 2015 to 11% in 2021.
With a spike in demand for wood panel products due to healthy real estate absorption, various emerging wood panel brands are looking for expansion in their core business categories. Plywood producers are entering into MDF, particleboards and laminates manufacturing, whereas laminates producers are diversifying to plywood and particleboards manufacturing. This is being experienced for the past five years as these products are being sold through similar distribution channels, which is one of the core drivers of these product categories. It is noted that laminate brands have more market reach with similar retail networks, thus, they can get the advantage of good brand recall among retailers and might take up a share in the high-end plywood market.
Due to the steep rise in prices of raw materials such as melamine, phenol, formaldehyde, kraft paper and base paper, the decorative laminates manufacturing companies have announced price increases by around 3-5% in entire thickness in HPL category from mid-August’21. Separately, the All India Particle Board Manufacturers association at a meeting on August 23, decided to increase the prices of wood and bagasse particleboards by Rs 3.5 per sqft (plain and prelam) with immediate effect, as they were facing severe challenges on profitability front post-second wave of Covid-19.
PVC resin prices have been rising rapidly in the last month as it increased by Rs 13 per kg to Rs 130 per kg, which has impacted the wood panel products which use PVC resin as raw material. The compound based on PVC resin is extensively used by wood plastic composite boards, door frames, PVC edge band tapes, PVC laminates, charcoal panels and decorative PVC sheets. The rapid increase in PVC prices is causing a lot of pain to smaller players who are already under pressure with liquidity and working capital issues. If the PVC prices do not come at sustainable levels with respect to finished product affordability, the smaller PVC based material manufacturer will witness a drop in profitability, working capital issues and issues in raw material availability.
The price increase is coming in the ACP segment in India following increasing raw material costs. The ACP manufacturer association has announced to increase the prices by 7-10% on different variants of composite panels which are produced with a combination of metal and plastic composites. The majority of players have announced the price hike from September 1.
The Finance Ministry has decided to not impose an anti-dumping duty (ADD) on several types of MDF boards having thickness below 6mm importer from Vietnam, Malaysia, Thailand and Indonesia. After investigation since April 2020, DGTR had recommended the imposition of ADD in April 2021 but it was further queried by the Ministry of Finance after objections of importers and users industry. The domestic MDF industry has the adequate production capacity to meet the domestic needs of thin MDF and to add further, existing companies are also increasing their capacities.
“We continue to remain positive on the wood panel pack, our top picks are Greenpanel (largest MDF player) and Century Ply (capital allocation towards high-RoCE MDF business),” the report said.
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