SHAPED BY OPTIMISM

Demographics and lower per capita consumption support the Wood Panel industry, but long-term fundamentals of muted demand and increasing competitive intensity are near-term headwinds

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The Indian wood panel industry, being ancillary to the real estate sector, has performed poorly recently. A slowdown in the real estate sector due to high-interest rates and lower discretionary spending toward home renovation - a direct consequence of high retail inflation - has hurt demand. Profitability on the other hand has suffered due to high raw material prices and cheaper imports, making it difficult for domestic players to hike prices.

The pain in the sector is evident from the financial results reported by listed companies for the just-ended October-December period. Both revenue and profits have been muted. The stocks have echoed negative sentiments on the bourses following unexciting views from company managements.

Around same time last year, the wood panel industry had enjoyed a lot of investor attention. Coming out of the Covid pandemic, the sector was witnessing a strong revival led by pent-up demand from the real estate sector and renovation activities by households. Demand was also aided by higher exports.

But with global shipping costs sharply down, the wood panel industry is now facing competitive pressure from imports. Higher imports come at a time when the domestic real estate sector is facing a slowdown, thereby impacting demand. While the demand side remains weak, competition from cheaper imports and high timber prices are impacting margins of the wood panel sector.

Broadly, the sector comprises of four segments - plywood, medium-density fibreboard (MDF), particle boards and laminates. The difference between the first three segments lies in their manufacturing process and their end use in furniture-making; laminate uses kraft paper and is mostly used for decorative purposes.