Paint makers hold back price hikes amid volatility

Despite crude prices fluctuating due to geopolitical tensions, Indian paint makers are holding back higher prices, at least for another quarter until March 31.

Paint companies say recent price hikes have yet to take full effect and that’s with the exception of a three-month stock position – which includes 30-45 days of finished stock; and an additional 45-60 days of raw material – should be sufficient to deal with short-term price fluctuations.

Brent is trading at over $100 a barrel.

Indian paint majors have already taken a 22% price hike so far in the nine-month period for the current financial year to offset commodity headwinds and other inflationary pressures that saw costs increase by 25%.

The latest round of price increases in January was initiated by AkzoNobel India, which increased its prices by 4.7%. Market leader Asian Paints, the country’s second largest player Berger and number three Kansai Nerolac did not announce any increases, however.

“Right now, there is enough inventory that could see us through the short-term period without any major price increases. However, if crude continues its upward trend and geopolitical tensions persist, we add to this uncertainties on the supply side, then it becomes difficult to predict long-term price movements.So, at least for this quarter, we do not expect any price increases,” said Abhijit Roy, MD and CEO of Berger Paints India. Activity area.

Berger is the second-largest paint manufacturer in the country in terms of sales and market share.

Commodity price pressure

Paint companies use crude-based derivatives, monomers and titanium dioxide (TiO2) as inputs. Raw materials account for approximately 55% of the industry’s total operating costs.

AkzoNobel India Managing Director Rajiv Rajgopal believes volatility in commodity prices, mainly raw derivatives, is likely to continue for paint companies for another three to six months before stability arrives.

“The hope is that high commodity prices should start to cool or stabilize around August. So another three to six months of such highs and lows are expected,” he said. .

Titanium dioxide, although stable at the moment, expects higher prices mainly due to geopolitical tensions. Prices for monomers and solvents are also on the rise.

Berger’s Roy adds that the supply and demand situation in Europe will also play a decisive role in terms of the evolution of monomer and TiO2 prices.

Impact on volumes

The price increases, most of which were announced after Diwali, will see their full impact in the fourth quarter (January-March). While gross margins are poised for gradual improvement, near-term volume growth may not be as bright, according to analysts who track the industry.

“There has been some slowdown in demand in inland markets which have not grown at the same rate as metros. Additionally, demand has also been hit with Omicron,” an analyst said.

In the third quarter, on a two-year CAGR (compound annual growth rate) basis, Asian Paints Ltd recorded volume and value growth of 25% and 27%, respectively. Berger’s two-year CAGR volume and value growth was 20% and 23%, the sources said.

Another factor likely to impact volume growth is dealers loading inventory ahead of price increases in the third quarter of FY22. As paint companies are now reporting that price increases products may no longer be needed, dealers may no longer add inventory in the current quarter, keeping volumes low.

“Gross margins would see some improvement from pre-Covid levels, say on a two-year basis. But to expect margins to be at the last budget level – when crude prices and inflationary pressures were low – or looking at exorbitant EBITDA margins of over 25% is unrealistic and unsustainable in the long term,” explained Roy.

Published on

March 01, 2022

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