I have looked into the roofing players (Sahyadri, Visaka, HIL, Everest) and will share my understanding of the business model here.
Big portion of their revenue comes from roofing business. Demand for roofing products is mainly driven by rural areas and the demand is mainly dependent on 1) Housing for all initiative 2) Rural economy 3) Prevailing Steel prices (substitute product; steel metal roofs) 4) Rain. So because of above dependencies the demand follows rural cycle making roofing business cyclical in nature. On top of the business being cyclical - there is overhang of asbestos fear in the mind of market participants keeping overall valuations lower.
Lately there has been acceptance and adoption of Fiber Cement Boards (FCB) & Panels in the construction market. There are many applications for FCBs and can prove to be a game-changer for sluggish roofing businesses. It is a higher margin product when compared to roofing products. FCB industry today is at ~1000cr and has grown at 15-20% CAGR over last 5 years. Below are few links/sources that should help to understand the possible potential of FCB industry. Third item is my post on FCB opportunity on my blog.
- http://www.plyreporter.com/article/10019/fcb-fibre-cement-board-the-fast-emerging-interior-exterior-panel-product-at-plywood-retail
- In Q1FY19 Everest’s earnings conf call, starting at 47 minutes of the call, CEO Mr. Sanghi beautifully explains the prospects and potential of FCB in India.
- https://rationalsideofpendulum.wordpress.com/2018/02/14/fibre-cement-board-changing-fortunes-of-sluggish-roofing-businesses/
My guesstimate is that FCB revenue contribution for most players would be 10-15%. With increasing awareness, it is growing at faster rate than roofing business. It will take some time for FCB to catch-up with roofing numbers and only then the market perception would change.
Overall, Sahyadri has posted strong set of numbers for FY18. If one excludes Windmill numbers, Sahyadri’s FY18 numbers look excellent!! Management has mentioned in FY18 annual report that enough spare capacity is available and most probably no need for any CAPEX in next 2-3 years.
Would encourage and request others to share their scuttle-but findings on FCB adoption and acceptance among construction players. All views/comments are invited.
Disc: invested and hence biased.