For investors in home decor stocks, Q2 to be a forgetful quarter

by HomeDecorBeauty

Investors in home decor companies should brace for subdued earnings performance in Q2FY23. Demand across segments was significantly weak in July and August. It did see an increase in September, but it may not be enough to move earnings for the quarter.

A month-long shutdown in the country’s tile manufacturing hub Morbi, in Gujarat, has hit demand for tiles in both domestic and export markets. In the wood panel segment, demand was subdued due to a high base. In the plastic pipes segment, the fall in PVC prices led to channel reduction and decline in both volumes and margins.

In a report dated October 4, analysts at Edelweiss Securities Ltd said that revenue for the home decor cover is expected to be flat on a year-on-year basis as higher realizations in the tiles/wood panel space are likely to be offset by weak volumes across segments and ‘ a sharp drop in plastic pipe realizations.

The report added that overall margins are likely to decline 400 bps year-on-year (yyy) and 60 basis points (bps) sequentially due to inventory losses in pipes, high gas costs in tiles and rising timber costs in plywood and MDF. One basis point is one hundredth of a percent.

Among the three segments, the earnings of plastic pipe manufacturers are likely to be most affected. “Until mid-FY22, the scenario in the PVC pipe industry was favourable, but in the last one year it has faced tough times hurt by weakening PVC prices (~20% lower in 3 months and ~40% in 12 months), ” reads a report by Systematix Shares and Stocks (India) Limited.

Margin weakness seen in Q1FY23 is likely to increase in Q2 for Finolex Industries, Prince Pipes and Supreme Industries, on significant inventory losses, the domestic brokerage said.

Meanwhile, shares of companies in the home decor space are trading well below their recent 52-week highs. Many stocks in this industry belong to the mid- and small-cap space, which tends to see steeper corrections than large-caps in times of market turmoil.

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