Manufacturers say prices will be cut in the next 2-3 months as they still carry high cost inventories
Falling crude prices means better days for paint makers, say experts. Well, don't expect price cuts by the industry players any time soon.
Paint manufacturers opine that any downward revision in prices emerging out of lower crude prices, already down by as much as 50%, would accrue only after next 2-3 months as most of them are still carrying high cost inventories.
Also, with oil prices widely expected to fall further - some predicting a level of $40 before bottoming out - pickup by the trade channel is being withheld, top officials of some of the paint companies said on the eve of Indian Paint Conference.
"Many of our raw materials are imported and so most of us have 2-3 months of raw materials in the pipeline which are quite often procured at higher prices. Though I don't want to discuss our pricing action, if crude prices continue to fall there would anyway be paint price reduction," KBS Anand, managing director and CEO, Asian Paints said.
"Price of end products would fall once our high-cost inventory is exhausted and we get the benefit of lower raw material prices. Since this is a highly competitive industry, we don't have the luxury of enjoying high gross margins for long. So, prices will fall but that will take a little bit of time," Abhijit Roy, managing director and CEO of Berger Paints.
Raw materials like vinyl acetate monomer and Titanium dioxide, which accounts for 15-18% of the total purchase basket of a paint company, are derivatives of crude oil.
"Since we import raw materials like Titanium Dioxide, weakening of the rupee also impacts us negatively. Also, before we consider impact of falling crude prices, we have to remember that only the oil based prices get impacted, not the water based ones," Roy said
Anand said drop in crude oil prices would definitely improve the margins but the extent would depend on how long the prices remain low.
Scrips of companies like Asian Paints, Berger Paints, Kansai Nerolac, Shalimar Paints and Akzo Nobel have consistently outperformed the broader indices, but still remain in the buy list of most of the analysts.
Interestingly, rapid fall in oil prices has raised expectations of the customers, which are looking at extended fall leading to postponement of purchases.
"There will be definitely price action due to the oil price slump. But before that happens, we are seeing trade holding back on lifting their stock, which we presume is because of volatility in crude prices," Pravin Chaudhari, executive director, Kansai Nerolac Paints, said.
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