Hello Sir,
Identifying macro level changes in any industry can help you find amazing investment opportunities. In the ‘Top down approach’ you first identify an industry that you believe has to grow significantly in the coming years and then try to find the best stocks in that industry. An immediate example of that would be the widespread hunt for good EV related stocks.
Today, we bring to you an industry wide change that we are witnessing in the interior design and home renovation space (specifically furniture). The shift to modular. We will first discuss the problems that users were facing with the traditional methods and then discuss the solutions that the new trends are offering for the same. We will also share names of the potential beneficiaries of this shift. So let us begin...
Before that, if you are interested in investing in a pharmaceutical company which has made an extremely complex and poisonous material from scratch (with a worldwide market potential of Rs 27,000 crore +) and is the only Indian maker, you can read about it here - LINK
The Traditional Method - For quite some time, Indians have been fond of strong and durable products while also being price sensitive. Whenever someone wants to get their home renovated the ideal process would be to call a carpenter and get an estimate of what the project would cost. The carpenter would tell an approx. figure and the work would begin. Here are some of the problems that customers used to face because of this system -
- No exact pricing - Since the carpenter could only give an approx. price the customer couldn’t be sure of the final cost of the project. It gets even more complicated when you are getting a full room or the whole house renovated. In most cases, the final cost would go way higher than the estimate
- Time consuming - For a normal sized double doored wardrobe it would take a carpenter about 5 -7 days to finish the project. During this whole time there will be a lot of disturbance in your house. Also, you will have to spend a lot of time buying all the products the carpenter would need
- Quality - When you are buying all the raw material and getting a product built in front of you, you might get a sense of control over the quality. However, the strength and the finish of the final product will depend on the skill of the carpenter (which is difficult to predict)
The Solution - Modular Furniture. You must have seen modular kitchens and wardrobes in many home renovation stores. There is a reason why these products have gained so much market share from the traditional way of building a kitchen or wardrobe. They solve all the problems mentioned above -
- Clear Pricing - Once you finalise the design with the vendor, they will give you an exact quote for your product.
- Requires much lesser time - Once you finalise the design, the vendor will get all the components of the wardrobe manufactured and flat packed. A normal sized double door wardrobe can easily be installed in 4 - 5 hours
- Quality - This was one of the biggest reasons why people preferred the traditional method over the modular method. However, now there are many reputed companies in this business who not only offer quality assurance but give warranties as well.
The biggest winner in this transition has been MDF. Medium Density Fibreboard is made by breaking down hardwood and softwood residuals into wood fibre and then glueing it together with resins. A high quality MDF would be approx. 50% cheaper than high quality Plywood. MDF is significantly lighter compared to Plywood making it feasible to pack and deliver.
The MDF industry has grown at 15% CAGR and could grow at 20%. Globally the penetration ratio of MDF to Plywood is 80:20 while in India it is the other way around 20:80. As the penetration increases, this ratio could improve significantly for India as well. Source : Annual Report FY21, Greenpanel Industries Ltd.
Beneficiaries - Some of the major companies dealing in MDF segment in India are: Greenpanel, Century Plyboard etc. While the opportunity size is big, one should also remember the fact that in the past the industry players have suffered on account of supply gut - imports and simultaneous expansion of capacity by all the major players. Thus, one needs to play the cycle tactfully.
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Best Regards,
Archit Mehrotra
Web: https://www.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected]
Disclaimer: You can access it here - LINK
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No