Cornonavirus is an evil we have to live with, at least in the short term. It cannot be an excuse for our economic under performance any longer. Meanwhile, it’s also true that an economy cannot be switched off and switched on just like you do with your ceiling fan in your homes. Moving out of the stalemate for an economy of the size of ours will take time and also considerable efforts, by the government, the industry and we the people at large. We at Sawdust have tried to gauge the state of our economy and the direction in which it is moving by taking the opinion of people from building material industry.
Paint industry yet to see demand from major cities
Asian Paints has a very useful insights into the post lockdown relaxation demand scenario in the country. According to the company, decorative business witnessed a good recovery in the months of May and June. Though April was a washout, in May 80% recovery in the business was seen while June saw a double digit growth in the business compared to previous year. Though May demand is pent up demand due to lockdown in April, demand in June was largely from fresh painting. Though there has been some down-trading in exterior paints from premium products to economy products nothing of that sort has been noticed in interior products. Since major cities are still in lockdown demand came from other cities. Tier 2,3, & 4 performed well in terms of demand in tier 3&4 cities has now touched pre-COVID level. Similar demand pattern witnessed in June may be repeated in other months also. According to the company, good monsoon augurs well for the overall demand in the coming period.
Kansai Nerolac feels that recovery in decorative paints will be much faster and quicker than in the case of industrial paints. The company also maintains that since waterproofing has become basic necessity it may not face any demand scarcity. According to many waterproofing product manufacturers post-lockdown period demand for water proofing products has picked up very well and much faster than for other products.
Export market opens up faster
Greenlam Industries feels that exports will recover much faster than domestic sales. The company saw its May sales reaching 45-50% of its May 2019 level while it touched almost 90% in June as compared to corresponding month in the previous year. In July also sales was reasonably good touching 80% of July 2019 level. However, exports fared much better during these months. Better performance on exports front may be due to the fact that COVID-19 started spreading much later in India than elsewhere in the world. Company is likely to gain market share due to supply-side constraints faced by unorganised/regional players (largely due to labour migration issues). The company expects to gain market share in both domestic and international markets going forward.
Most of the building material manufacturers admit that demand in rural India is much better than in major cities due to rural employment schemes and direct benefit transfers. If the monsoon is good which in turn will ensure good crop will further push up rural demand in the coming days.
Higher farm income good news for industries
Visaka Industries, second largest manufacturer of asbestos-cement roofing sheets (ACS) is positive about the demand prospects despite the ongoing COVID-led disruption. The company is seeing sudden demand tailwind in its ACS segment. The higher farm income, recent labour migration to rural areas, record rabi crop production and expectation of normal monsoon this fiscal has led to a sharp improvement in demand and pricing for the ACS segment.
Don’t take rural demand for granted
However, Orient Cement adds a word of caution. According to the company management, there has been some softening in rural demands recently due to rising Covid-19 cases and seasonal weakness of the monsoon season. The company is of the opinion that demand is impacted in Maharashtra and South markets due to sporadic lockdowns and migration of workers. However, the company optimistic about the future demand scenario as the low-cost housing projects have started picking up in AP (0.2mt every month for affordable housing) and Telangana too is trying to focus on low-cost housing.
According to Ultratech, the largest cement manufacturer in the country, demand is quite resilient post the lockdown, with industry volumes marginally up YoY in June and July. The company expects the cement demand to rebound from CY21 with strong rural income and normalization of urban demand.
Some are still affected by lockdown after effects
On the other hand, Everest Industries faced several challenges like lack of manpower, particularly contractual, delayed permission of opening of plants, supply chain, restrictions by local authorities, general health and safety along with availability of trucks and increase in petro product prices. Apart from that, the company faced other challenges like inability to visit markets, low demand in urban areas, customers taking additional time in decisions, no physical meetings, projects deferred, customers conserving cash. Unless the uncertainty surrounding COVID-19 goes away its difficult to expect normalcy returning to market.
Conversation with the people in the industry lead us to conclude that demand is picking up but adhoc local lockdown which has become a norm now is upsetting all the calculations. Early invention of vaccine will be boon to the economy in general as it brings some amount of certainty into the economy. At present, it’s not the COVID-19 per se but uncertainty surrounding the lockdown that is impacting the demand growth.