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Budget 2019: ‘Housing For All’ positive for building material sector

The 3-year target looks achievable, considering that more than 1.5 crore rural homes have been completed in the past five years

July 08, 2019 / 04:04 PM IST
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Inclusive growth is essential to sustain India’s growth momentum. The government through various stimulus measures and subsidy schemes continues to provide impetus to the rural economy to promote such growth.

This year's Budget is no different from previous years and is focused on providing further stimulus to this segment through its affordable housing mission. The scheme not only aims at improving infrastructure in rural areas, but also focuses on improving their daily lifestyles by providing basic facilities such as toilets, electricity and LPG connections to the masses.

Pradhan Mantri Awas Yojana scheme was launched in 2015 with an aim to build houses for all by 2022. The execution in the first phase has been fairly promising and in the second phase of this scheme (PMAY-G), the government is planning to build 1.95 crore houses for the eligible beneficiaries. The 3-year target appears realistic and achievable, considering that more than 1.5 crore rural homes have been completed in the past five years. The pace of development has also picked up, along with the scale of execution as the average days of completion have witnessed a drastic reduction from 314 days in 2015-16 to 114 days in 2017-18. Various measures such as tax holidays and interest subsidies are being given to incentivise purchase of such houses.

The development of houses should bring a demand boost for the entire segment of building materials. Companies operating across various sectors such as cement, tiles and sanitary ware, pipes, paints and construction chemicals stand to benefit from this move. Stricter implementation of GST would further enhance the growth prospects and augur well for the organised players in this segment.

Within the listed equities space, companies such as Cera Sanitaryware have entered the economy segment with its Jeet brand in order to capture demand from government and institutional segments. Although Cera’s presence in this segment is very small, incremental orders from PMAY should aid its profitability. Similarly, Hyderabad Industries (HIL), the manufacturer of roofing sheets, panels, boards and pipes, could see some order traction as it enjoys a long-standing relationship with the government. The company has enough spare capacity to tap the market opportunity and is looking to expand its pipe segment at a rapid pace.

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Also, the upward revision in Customs duty to 15 percent from 10 percent on ceramic roofing and wall tiles would provide a major fillip to domestic tile manufacturers and also reduce import dependency. On the contrary, increase in Customs duty on PVC to 10 percent from 7.5 percent would adversely impact the margins of all pipe manufacturers. However, backward integrated players like Finolex Industries would remain immune and its margins would get further cushioned from the latest duty exemption on ethylene dichloride (EDC).

Also Read: How to bet on government’s promise to deliver water to every household

For more research articles, visit our Moneycontrol Research page

Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here
Sachin Pal
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