Margins to improve for select home décor categories in Q1

gas costs, along with alternate fuel utilization, is expected to enhance its Ebitda margin to 16.1% y-o-y.  Peer Cera Sanitaryware Ltd is also expected to see an upward trend, with a 14.5% y-o-y revenue growth and operating margin at 16.1%, marking a 60bps y-o-y increase. Profit after tax growth is estimated to skyrocket by 33.6% y-o-y, as per the Prabhudas Lilladher report.

The landscape for wood panel firms, however, remains challenging due to soaring timber costs and heightened competition. “With local capacity adds and the import threat (accelerated to pre-Covid levels now), investor concern about margin sustainability in MDF has heightened," said analysts at Emkay Global Financial Services Ltd.  While a meaningful recovery in margins may be away, there are some levers that contain a further deterioration.

“We see low probability of margins witnessing any material decline from hereon, as: 1) the industry has seen margins falling to 5-6% from 25-30% over Q3FY18-Q2FY19, due to aggressive focus on market-share gains by new players," said the Emkay report. Also, a drop of 10-15% in international MDF prices over the last year has significantly reduced the price gap between international and domestic MDF to only 6-8%.

This is expected to cap any further domestic price or margin decline. However, Emkay analysts, adopting a conservative approach, are predicting a further 200-250bps margin contraction (350-400bps y-o-y in FY23) in MDF through FY23-26.Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!