Strong potential for wood care products identified as construction activity rebounds

„ Formal water-based wood coating segment currently remains relatively underpenetrated

Wood care products such as wood protection coatings and preservatives, a widely used but little mentioned industry, has a strong potential in Sri Lanka, as housing construction remains robust due to a growing middleincome class while the industrial application will also gain momentum since construction activity rebounds after the downturn sparked by the pandemic.

Wood coatings has a strong correlation with the housing market, as they are applied mostly on windows, doors, cabinets, furniture and flooring among others, for a better interior and exterior finish of their wood surfaces, while the water-based types are used to treat wood intended for both residential and non-residential applications for their durability.

Sri Lanka’s construction activity returned to normalcy after the temporary setback from the pandemic, the data on the cement production and imports, which returned to pre-pandemic levels in June, showed.

Reaffirming JAT Holdings Private Limited, Sri Lanka’s largest player in the wood coating industry with an A+ rating with a Stable outlook, ICRA Lanka said it recognises the strong growth potential in this market segment, “although this industry in Sri Lanka has experienced a slowdown during FY2020, due to exceptional events that have taken place during this period”.

JAT Holdings has a strong brand name and dominant market position in the Sri Lankan wood coating industry, especially in the water-based wood coating segment.

ICRA Lanka, part of Moody’s Investors Service also observed that the existing formal water-based wood coating segment remains relatively underpenetrated, which provides room for growth.

“ICRA Lanka also draws comfort from growing water-based wood coating market in Sri Lanka amidst the conversions from the fragmented markets as Sri Lanka’s formal water-based wood coating segment currently remains relatively underpenetrated,” it added.

The company is the largest distributor globally for the Sayerlack brand, which is owned by Sherwin Williams and has exclusive distribution rights for the entire South Asian region.

Despite the competition from the current and new multinational companies, JAT maintains the highest market share in the overall wood coating sector in Sri Lanka.

“Notwithstanding the challenging market conditions, the company has sustained its market shares of the wood coating segments during this period. Going forward, the company’s market share in the local wood coating industry is expected to further strengthen as most competitors, in the postCOVID-19 pandemic, have experienced liquidity constraints, due to the slowdown in the overall wood coating industry,” the rating agency said.

While the company has grown its revenue by 17 percent every year during the last four years from 2015 to 2020, the revenue moderated in 2020 by 3.8 percent, owning to the slowdown in the local wood coating market.

The company also exports t o India, Pakistan, Bangladesh, the Maldives and some African markets but these markets have experienced some slowdown, due to the import restrictions and lockdowns, owing to the pandemic.

The company made an operating income of Rs.6.29 billion in the financial year ended in March 2020, compared to Rs.6.55 billion in a year earlier. The company reported net profit of Rs.709.8 million for the year ended in March 2020, compared to Rs.881 million reported in the previous financial year.

In recent times, as part of its diversification strategy, the company offered new product categories such as ceiling products and Harris paint brushes and admixtures and epoxy chemicals.

In a bid to position itself as a leading player in the broader interior and living spaces market, it has continued its tie-ups with premium international brands such as Herman Miller premium furniture and Armstrong architectural products.

“The company has also diversified into the premium interior design segment in the recent past through tie-ups with a German-based SEA Group, to provide furnishing solutions in the premium real estate sector in Sri Lanka,” ICRA Lanka added.