See no revival in housing sector demand yet: Products Ind

Speaking about the possibilities of demand recovery in the products business Sajjan Bhajanka, MD, Century Plyboards and Anil Gupta, CMD of KEI Industries  agree that there is a slump in demand in the housing sector and haven’t seen any on-ground revival as yet.However, with the government's thrust on affordable housing and smart cities, Bhajanka is hopeful of uptick in demand for their products and has already added capacities in place both within and outside the country. Traditionally, for Century Plyboard the demand is low in April, May, and June but picks up in June till the festive season Dassera. He is confident of maintaining 25 percent CAGR in FY16 too. The company is all set to launch new ad campaigns in June to improve sales.According to Gupta with expected pick up in investment cycle in the transmission and distribution business of power sector this year, demand for cable and wires would go up. The company is seeing better order inflows but less than expected. One could see a 10-15 percent growth for the cable segment, says Gupta.

Below is the transcript of Sajjan Bhajanka & Anil Gupta’s interview with Sonia Shenoy and Reema Tendulkar on CNBC-TV18. Reema: The notable trend this quarter has been the lack of volume growth so, even in your company in the quarter gone by the volume growth had decelerated to 6 percent versus about 12 percent volume growth that you saw in the first nine months of FY15 and even few statements that we got from companies like Asian Paints, they point to a sluggish demand environment. How are you reading this lack of volume growth and will it persist even in the coming year?Bhajanka: Yes, I fully agree with you, there is a slack in volumes now; there is sluggishness in the market. This we have seen in the last quarter and in the first two months of this quarter as well. April and May were not great volume-wise, so it is apparent that there is some demand slump. So maybe still people are bullish and expect Modi effect to take shape. People are eagerly waiting for the housing sector to pick up but so far we have not seeing any such activity.Sonia: Are you getting a sense as well that there is a big slowdown underway and if yes how long do you think it could take for demand to pick up?Gupta: In our opinion government has initiated some steps to bring in hefty government investments especially in transmission and distribution side of the power sector and we are seeing lot of orders being finalised by Power Grid and other companies in transmission sector. Some of the schemes are announced by the government for the distribution companies like Integrated Power Development Scheme (IPDS) and Deen Dayal Upadhyaya village electrification programme. So in this coming year we may see a lot of demand for wires and cables from these sectors. We know that housing sector is still slow and underperforming and I expect that it may take another one year for the real estate sector to go in but on the other hand, infrastructure is doing well especially the metro rail projects. If the railways’ investments that government is talking about starts, we may see effect in next two to three years for the investments to come up in the railways. Power generation sector may see some activity this year due to allocation of coal blocks but the major thrust in this year should be Transmission and Distribution (T&D) sector which should bring in investment and relief to the companies.Reema: On a blended basis what would be the order inflow run-rate that KEI industries enjoys and will it be better compared to the order inflow run-rate say we saw a year ago?Gupta: Yes, we are seeing a better order inflow in this year but as I said that the growth rate expected from the cable business should not be more than around 10-15 percent. Even if you see the statistics given by electrical industry associations, we have seen a reasonable growth in the last financial year also especially in the wire and cable industry and as I said that this major growth is coming from transmission and distribution sector.Sonia: Can you give us a sense geography wise where are you seeing the highest amount of pressure in tier-I, tier-II cities and even within geographies and also will you have to increase your advertising cost, your promotional expenses in order to wade through this period?Bhajanka: The impact of this demand slump is all over the country, in all the geographies. Usually April May are traditionally low in demand, so demand generally for our sector picks up from June onward up to the festive season of Dussehra. So, that is there and around that time only we start advertising, so we re-launch our TVCs and other things around early June so that will be there.Apart from that in my sector particularly, the plywood, the unorganized sector is big, they command around 70 percent share whereas the organised sector has only 30 percent share but 10 years back their share was 90 percent, ours was 10, so we moved from 10 percent to 30 percent. And now with the expectation of GST, things will change. GST would be game changer because the sustenance of the unorganized sector is basically on the clandestine removal, undervaluations and tax evasions.Sonia: But as of now there is no clarity on whether GST will even see the light of day anytime soon, so just to give us a sense of how this slowdown will impact your own earnings? In the quarter gone by that is in Q4 you still managed to do a 20 percent top-line growth and about a 60 percent bottom line growth, so even amidst the slowdown your company is doing quite well. Can you give us a sense in the first half of FY16 will you be able to this 20 percent top-line growth?Bhajanka: We have maintained it from last 10 years the Compound Annual Growth Rate (CAGR) of 25 percent plus, so it is a mix of many factors. All the time we are adding new capacity - just acquiring new units or building new capacity, so once material is produced; it is to be sold in the market.We have always targeted a 25 percent growth, so this year also target is intact and we shall try our best because we are preparing our self for the big demand because of Modi’s smart cities, and again with four, five crore housings in coming few years there will be a huge demand and we are preparing our self for this demand. We are creating capacity within the country, outside the country, in Myanmar, Laos so these all we are prepared. We have capacity and whatever so far we have produced we are able to sell, so that exactly we shall be doing in future also.