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Building material companies will grow post demonetisation
The radical step of demonetisation by the government has left everyone stunned. But the broader effects of this stir will help the building material sector growth in the longer run.

'Real estate in India' is integral ingredient for the growth of economy. From the past two years the market has said to improvise in next 6 months but the favourable developments never took place. The market has remained static at its best in smaller towns and turned down in Metro cities.

Now comes demonetisation and the market has slumped for the time being. The customers are more cautious in their reactions as to when the realty space will actually improve. The implication for building material industry, which closely links with real estate fortunes with the expected lines.

Some facts have been read about: Over 600 tile factories shutting down in Morbi, the Ceramic Capital of country, similarly for products like Sanitaryware, faucets, plywood, wooden boards, cement, steel and the list goes on.

The reduction of cash will put India in the similar league of a far more developed country and make the economy more efficient & cashless. It's a positive and bold move by the government to strengthen and revive the Indian economy. The structured companies in realty sector will radically benefit from this move and the curse of black money will sooner vanish from the overall industry.

Favourable market for tax compliant companies: The building material industry, barring some product categories like paint and cement, consists of large unorganised sector. Traditionally, players in unorganised sector have been very creative when it came to tax compliance, be it excise or VAT or any other statutory levy.

After demonetisation, these players have been affected badly as all their prices and cost structure was based on creative tax compliance. Thus it should give a boost to companies in organised sector, which have always been adhering to full tax compliances. It's time when these companies should go aggressively to customers and explain their value proposition which also ensures peace of mind to customers from tax worries.

Affordable Housing is King: People are saying that demand for housing has got affected severely. I have met over 30 builders from all sizes of city in last one month and what I have discovered that demand is intact for two segments – affordable housing to mid size houses under one crore in big cities and all housing except luxury villas in smaller towns.

I met a builder from Raipur who has actually increased rates from 10th Nov. His logic is that with expectation of imminent fall in interest rates, the demand is picking up from actual users. Also, it is unlikely that builders will announce any new project for some time hence available stock becomes premium.

Technology making operations efficient: The sector is still almost untouched by the wave of e-commerce sweeping in B2C segment with companies like Flipkart, Amazon and their likes having made paradigm shift in consumer mind space.

Building material is still very brick-and-mortar model. The distribution route is traditional, which is company-distributor-dealer-customer and customer could be builder also. Some companies have come in this segement recently.

I am founder of one such portal named bmatpro.com which is B2B portal for construction Industry aimed at builders. It brings together company and builder on one tech platform and transactions happen without middleman profits and costs and there is atleast 15% saving for builders.

Our online sales have more than tripled post Nov 8 as now we do not have unfair disadvantage of lower rates by some players using tax avoidance tricks. Our customers range from builder of single building to mass housing.

While every company is not expected to go for online sales on their own, they can partner with some existing players in this domain. Also, they can use technology to cut cost and pass benefits to customer.

In the final analysis, the market has not collapsed. The sales may be down by 20% - 30%, which means 70% to 80% of normal sales are happening. Those who focus on right segments, are following the law of the land and embracing technology to make operations efficient and customers happy will not only survive this phase but in my opinion, will show excellent sales and profit growth in the time to come.

(Inputs by Santosh Nema, Founder and CEO, bmatpro.com a B2B e-commerce site for Building Materials)

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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