The paint makers are set to have a pretty colourful bottomline by the end of the first quarter.
Market leader Asian Paints and another leading player Berger Paints have both raised prices recently on hardening raw material prices, which were stable all along. With this, the paint makers have hiked prices twice in the current quarter, in May and again in June, which would be reflected in their bottomline when they report their earnings in August.
However with some of the raw material prices already seen northward journey, further price hikes are largely being ruled out going ahead. "Industry had taken price increases in May and has again in June. On agregate we have raised prices by about 2% and we will see the full benefit in this quarter. Raw material prices have been stable expect some cost pressure from vinyl acetate monomer (used in water-based adhesives) and other imported raw materials. But we see stability in prices going forward and belive we won't need to go for hikes again," Abhijit Roy, managing director, Berger Paints India told dna.
Asian Paints took a price hike of 1% in May followed by 1.2% in June.
"We had taken cumulative price increases of 6.14% during FY 2013. There has been further increase of 1% on May 1 and again 1.2% on June 1," KBS Anand, managing director of Asian Paints, had told analysts.
The price revisions came on the back of slight upswing in select raw materials, which will help the paint makers report better margins in the first quarter (April-June) if the demand scenario remains stable.
In addition to rise in prices of raw materials, currency movement has also been impacting the costs of materials many of which are linked to crude oil prices. Titanium dioxide, which accounts for 15-18% of the total purchase basket of a paint company, had remained depressed for long dropping by as much as 40% in 2012-13 and then remaining stable for the whole of 2013-14.
For Asian Paints and Berger, demand conditions have remained resilient despite overall sluggish economic environment, helped by double digit volume growth in Tier 2 and Tier 3 cities where emulsions continued to do well, officials of both the companies told analysts. "Double digit volume growth was led by Tier 2 and Tier 3 cities," Anand said. "Rural markets are pretty much holding while decorative segment recovered in tier 1 towns as well. Replacement of enamel with emulsion are happening in rural areas," Srijit Dasgupta, CFO of Berger told analysts.
The only sore point that remains is the continued slowdown in industrial segment, particularly protective coating business. "Protective segment is worst hit while there has been marginal improvement in general industrial other than automotive and also in commercial and two-wheelers," Berger official said. "We are less worse off in case of protective coating business where paints are sold to dealers but direct sales to projects are suffering," he said.