The pandemic is likely to work in favour of organized players in the home decor industry. Smaller players are facing severe working capital pressure. A sharp rise in raw material prices is also impacting their business. In this situation, the industry is heading towards consolidation. And, organized players have emerged as the major beneficiaries of this situation.
Strong Demand in Q4FY21
The home decor industry witnessed strong demand in the January-March quarter. Products like tiles, pipes, and wood panels remained in huge demand.
It was aided by a buoyant real estate sector supported by the lower interest rates and government stimulus. Consumers spending more time at home also opted for home decoration.
Yet, the demand momentum stands interrupted with the return of lockdowns. It is now putting smaller players in a severe liquidity crunch.
Consolidation In Favour of Larger Players
As per an Edelweiss report, larger players are gaining ground and the market is expanding in their favour. They have also managed to increase their distribution network in the last nine months. Somany Ceramics has added more than 400 dealers, and Supreme Industries is likely to add 8,000 retailers in FY21.
While business is impacted for smaller players due to the financial crunch, larger players have also benefited from the rising demand for tiles in the export market.
Similar Trends in the Wood Segment
The plywood industry has also seen a sharp rise in raw material prices over the past six months. It has put unorganized players under immense stress. Timber prices have increased in absence of a strong supply. Their plantations have dropped more than 50% and many small companies are able to buy less than 50% of their requirements.
Base paper prices have also increased by 20–25% in the last four months. B-grade kraft paper is selling at Rs 42 per kg, a jump of nearly 75% in prices in five months. Prices of other raw materials like melamine and phenol have also gone up during this time. It has affected the prices of end-products like plywood, laminates, particle-board, and MDF as well.
The combination of all these factors has increased the stress for smaller players. And larger ones are benefited from market consolidation happening in their favour.