Slowdown bug has bitten the real estate ancillary industries — such as paints, tiles, sanitary ware and plywood — more than real estate players and housing finance companies.
In the September 2015 quarter, the real estate ancillary industry, which includes companies such as Asian Paints, Greenply Industries, Finolex Cables and Hindustan Sanitaryware, saw a downward trend not only in the topline but also the bottomline.
The sector reported cumulative revenue growth of 4.4 per cent for the quarter, compared to 6.7 per cent in the previous year quarter.
Similarly, the combined net profit grew just 20 per cent year-on-year in September compared to 31.5 per cent in the June quarter.
The realty sector, on the other hand, saw a 12.5 per cent revenue growth, against a decline of 12 per cent in the June quarter. The profit has also grown 16 per cent during the September quarter compared to a drop of 57 per cent in the June quarter.
Volume growth “Ancillary companies have witnessed volume growth pressure while profitability improved due to the benefits of lower price of raw materials like crude-based derivatives and plastics,” said G Chokkalingam, founder of Equinomics Research & Advisory.
Also, analysts pointed out, the ancillary industry caters primarily to the final phases of construction. Since there have not been many mega launches in almost two years, there has been a delay in demand, or less incremental demand, for the ancillary industry.
Further, the ‘ancillary’ companies are also dependent partly on replacement demand, which is discretionary in nature and tends to get postponed amid slowdowns.
Real estate players have witnessed an improvement in performance in the September quarter mainly due to better execution of old projects and a lower base (comparable quarter of previous fiscal), analysts said.
However, housing finance companies (excluding HDFC) continue to see strong traction and their financial performance has actually improved consistently since FY15. Examples include LIC Housing Finance, Dewan Housing Finance and Indiabulls Housing.
“The housing finance companies derive a majority of their business from tier 2 and 3 cities, where demand is still going better than metros,” said an analyst.
HDFC, which is more urban-market focussed, has reported lower growth in topline and bottomline than its mid- to small-sized rivals, with a rise of 7.9 per cent and 18.2 per cent in net interest income and net profit respectively in the September 2015 quarter.