How to play the housing theme on Dalal Street

ET Intelligence Group: The government's initiative to provide affordable housing under the Housing for All scheme has brightened the prospects of companies across sectors that cater to this segment including adhesives, cement, electrical consumer goods, lighting, paints, pipes, plywood, sanitary ware, and tiles.

Asian Paints, Astral Poly Technik, Century Plywood, Cera, Crompton Greaves Consumer Electricals, and Shree Cement are some of the prominent companies that are expected to show better earnings growth.

The country is expected to spend over $ 1 trillion (approximately Rs 65 lakh crore) to build six crore houses in the next seven years. This translates into 13% annual growth in capital expenditure. Analysts estimate that such a high expenditure will result in 3-8% higher revenue growth for ancillary companies.

The government's budgeted expenditure for FY18 is Rs 29,000 crore under the Pradhan Mantri Awas Yojna (PMAY), nearly 2.6 times higher than FY16. Under the scheme, the government may spend around $85 billion between FY18 and FY24, according to CLSA estimates.

In addition, the government has announced up to Rs 2.35 lakh loanprincipal reduction with annual income up to Rs 18 lakh for affordable housing schemes. Falling interest regime is also helping with mortgage rates at near five-year low. These factors together with tax in centive for the builders who construct affordable housing are likely to result in an annual demand of 10 lakh affordable.

Cement companies are expected to be major beneficiaries since housing contributes nearly 60% to cement demand. It is estimated that of the total expenditure in housing sector close to 14% will be in cement sector. In the March 2017 quarter, cement consumption in low-cost housing segment went up by 40% year-on-year to 20 million tonnes (MT). Crisil, a ratings and research firm, expects 48 MT of incremental cement demand in the next three fiscals.

Paints companies will benefit as an organised market accounts for nearly 70% of the total market, and market leader Asian Paint has been a price-maker. This helps in protecting margin amidst volatile raw material prices.

In the consumer electrical sector, Crompton Greaves Consumer will benefit from being a market leader in the fan segment and rising presence in the lightening space.Another beneficiary will be pipemaker Astral Poly Technik, which offers full range of pipes and fitting.