- January 12, 2022
- Posted by: admin
- Category: News & Atricles
THE PAINT INDUSTRY HOPES FOR BETTER SHINE AND LUSTER IN THE NEXT FISCAL YEAR
The Finance Minister, Nirmala Sitharaman, will present a fourth budget for the Modi 2.0 government on February 1. In addition, PSB net income for the first quarter was $ 1.4012.2 billion for the second quarter until September 2021. The Paint industry is wishful and relies significantly on the policies to make up for the losses and have an excellent fiscal year ahead. Pain tor the coating industry has been struggling since the pandemic set upon. Over the past few months, inflation and lesser demand have stubbed it again.
Shares of Berger Paints NSE 2.70% (India) Ltd. was trading up 1.87% on Friday at 10:20 a.m. (IST). About 10,158 shares changed hands at the box office. News of this stance appears as a glimpse of the bright rays ahead.
Despite the hope, the rising crude oil and titanium dioxide prices (accounting for about 20% of raw material costs) have had the most significant impact on paint companies’ profits over the past four decades. The situation becomes even more dangerous for the unorganized sector, which lacks the strength to negotiate the price of raw materials.
Moreover, things have improved after companies raised prices in this financial year’s 2nd and 3rd quarters. Some softness in commodity prices helped the manufacturers improve the margins profits of all actors.
India’s paint industry had a compounded annual growth rate (CAGR) of 11% in the financial year 2011-19. Asian paints remain the most significant player in the Indian Paint sector (Founded in 1942, Asian Paints is the first paint company in India and the third in Asia, with a turnover of Rs. 193.50 billion). Decorative paint is the largest segment of the paint industry and accounts for about 74% of total paint sales. The decorative coatings segment has been largely unaffected, which promoted the sustainable slow growth of the paint industry.
April and May are two critical months for repainting the domestic market, which generate about 25% of the country’s annual paint sales. Unfortunately, the financial year of ‘21 still couldn’t overcome the pandemic, resulting in closures. No sign of recovery was shown due to the effects of the second wave and hence the lesser demand. However, the next financial year ‘22 is expected to help in the sales and hence reduce the losses of the previous fiscal year.
Will to dictate growth
The gloss industry expects strong output growth, driven by repainting and new construction demand. Strong festival demand coupled with good monsoons has contributed to the growth of the painting segment in urban and rural areas in previous times. The following year comes with many more celebrations and colours to choose from. Additionally, “the expected growth in construction activity over the next five years creates opportunities for new paints,” said Deepak Jasani, head of retail research, HDFC Securities. He added that accepting better paint products in small towns and upgrading to premium brands in towns and cities will help increase value.
Kotak Institutions Equities says demand for decorative paints has increased sharply over the past four quarters. This is due to strong demand in urban and rural markets, the continued increase in market share of organized versus unorganized parties, further accelerated by pressure from RM having an impact on the ability to price competitiveness of smaller parties (mostly economic categories) and good growth in adjacent product groups (waterproofing, wood finishing).
Refreshing New Growth
IDBI Capital published a report in the hope to make waterproofing the default with paints, “We expect all paint companies to experience strong double-digit revenue growth in this sector.” This category is mainly untouched and untapped. “The overall size of the waterproofing industry is 1520% of the paint industry (at Rs 6,000 crore) and is growing faster than paint,” the broker added.
The technology involved in the manufacture of waterproofing products and its business economics is very similar to that of paint. Therefore, it doesn’t come with a compulsion for coating companies to make a new line. These products can be sold through their existing distribution channels.
However, the nature of this category creates some barriers to entry for new players. This is because “the sealant is better not sold through advertising but rather the quality of the solution provided, the skill imparted to the contractor and the warranty given on the products,” IDBI said. To be sure, Pidilite runs the Dr Fixit academy to train contractors in waterproofing.
Agreement between Inflation and price hikes–
Input prices (crude oil and derivatives, TiO2, and packaging materials) have increased by 40-50% in the past 12 months. “Crude oil prices affect the decorative paint industry more than any other industry. Firstly, it is the main raw material industry that needs more than 300 materials to produce paint. Secondly, most raw materials come from oil,” said Jasani of HDFC Securities added. The industry pundits have expressed this issue before as the raw materials are approximately 50% of the total cost.
In addition, due to disruptions in the supply chain, there was a shortage of the iron needed to produce paint cans, resulting in a sharp increase in the cost of packaging paint.
Coating companies implemented two adjusted price hikes after the holiday to counter inflationary trends in raw material costs. The Asia paint market leader has increased prices by 9-10% since 12 November 2021 and increased by 4-5% from 5 December 2021. The cumulative price increase that the company has realized since April 2021 is 2.122%.
Berger Paints, the second-largest company, has also seen prices increase in its products from about 18% to 19% since the start of the year. “This price increase is expected to almost completely relieve the pressure on gross margins and lead to a rapid recovery in industry profitability,” Kotak said. The inflation has increased value that has compelled the industry players to compensate by increasing prices to avoid losses.
“While we recognize that coatings companies have taken corrective actions such as price increases, cost reduction initiatives, and are focusing on delivery and dispensing efficiency, it can impact earnings in fiscal year ‘22,” ICICI Securities said in the report.
The recently observed stabilization and falling crude oil prices could bode well for coatings companies hoping to restore profit margins to last year’s by March 2022, Jasani added.
The industry had faced a trend in the financial year FY 08-10 when most input prices increased by 40-60% in FY09 compared to FY08. “Profitability has fallen sharply in FY09 but recovered quickly in FY10 due to price increases. Cost reduction initiatives and some adjustments in input prices”, added ICICI Securities.
New players in Market
Despite the conditions of market players like Grasim and JSW, they gleamed upon this as the best time to enter the market. It is currently heating the Indian paint industry with increasing competition. However, economic conditions are expected to remain strong.
“A higher quality product, lower prices, and higher reseller incentives are the three levers consistently used by new players to compete,” IDBI Capital said in its report. However, historically, the broker added that we do not believe these leverages have significantly impacted market share loss for operators.
Paint industry margins are expected to decline in the fiscal year 22-23 as market leaders will protect their volume and market share, even at the expense of profitability in some of the best quarters determined, as a signal to new entrants ICICI Securities said.
Asian Paints pool significant profits of the paints industry, and if they are altering margins, the chances are that the #2 and #3 players will also give up some of the profits. It can take lead to a cut in total industry profits. This will signal to new competitors like Grasim and JSW that incumbents will defend market volume/shares, even at the expense of profits.
Over time, the paint business will continue to generate interest as it will be interesting to see how new players deploy their strategies to reach established players. Indeed, the next fiscal year has yet to decide which players will hold their positions and who are willing to dunk.