Despite short term challenges such as demand volatility, labour migration and reducing profit margins, the building materials industry is trying to get back on the growth trajectory in the post-Coronavirus scenario.
The building materials industry has become a symbol of resilience in terms of recovery and growth during the COVID 19 pandemic. While the initial days of the lockdown pressed for some challenges in the sector, the industry has been able to withstand most of the upheaval during the first and second waves.
Currently, the sector is regaining its mojo, especially powered by a boost in infrastructural development. In the current scenario and for a stronger post COVID world, some of the key challenges that companies in this sector will have to overcome in order to sustain their growth are:
Bringing back the migrant workforce: Migrant labourers form a large part of the industry’s workforce. Many chose to return to their hometowns during the pandemic due to the nationwide lockdown last year, followed by the partial lockdowns this year.
The reverse migration of labourers both during the first and the second wave has significantly impacted the industry. The result is a temporary shortage of labour which has interrupted production capabilities. One of the major tasks for companies in the sector will be to get the workforce back on track so that operations can continue seamlessly.
A volatile demand cycle: Another main challenge is that demand has been very unprecedented in the last few months. Due to the pandemic, retail customers have become a lot more sceptical of engaging with sales teams. Even from the real estate industry, the demand cycle has been abrupt as most players had to pause construction activities due to the pandemic.
Extension of sales cycles: Like all sectors, the changes in the ecosystem has impacted the building materials industry. The economic uncertainty that the pandemic has brought about, and the temporary scarcity of manpower, have led to a delay in the decision making, especially at customers’ end. Apart from this, several new project launches have been delayed due to the intermittent lockdowns that are being imposed in states. What this means for the building materials industry is that the overall sales cycle duration has increased.
An adverse impact on profits and ROI: The pandemic has also exacerbated inflation due to the fluctuating demand-supply cycle. As a result, the cost of input materials such as cement, petrol, diesel, to mention a few, has been on a constant increase, especially during periods of lockdown.
The scenario becomes such that, post lockdown, resuming the supply of finished material to projects at pre-agreed rates is becoming tough. The revenue from a project is also stuck if the project gets stalled, and this impacts overall profits and ROI.
Across all industries, it is becoming clear that we await a whole new world once we reach the post COVID stage. The building materials industry is currently estimated to record a CAGR of 15 percent and reach Rs 29,782 bn by 2024, a figure that may have slowed down due to the current pandemic.
However, things look good for the industry despite these challenges, as factors like the boost to the affordable housing segment, Government’s push towards infrastructural development will become key to the sector’s recovery. As infrastructure development is an important catalyst to economic recovery, companies in this sector are on the road to bounce back in no time. Further, making certain foresighted strategic approaches can also go a long way in helping the industry to get its agility back.
This article is contributed by Mr. Ashwin Reddy, Managing Director, Aparna Enterprises Limited.