As the economy trundles back to activity post-lockdown, the paints sector is quite positive about the demand scenario. CNBC-TV18 spoke to 4 major paint companies--Asian Paints, Berger, Kansai Nerolac and Akzo Nobel--over the last couple of days to get a sense of things on the ground. These four companies account for over 95 percent market share in the organized paints market in India.
Broadly, all four companies said that things were improving. Roots for the same can be traced back to pre-COVID demand trends, which were strong.
All companies said growth in Jan and Feb was stronger than the previous 9 months, while business suffered in the last two weeks of March because of the lockdown.
April was a complete washout for all paint companies, but there were some green shoots visible in May. As things stand this month, all companies are back to at least 80 percent of sales seen in June 2019.
Berger paints believes this could be on account of pent-up demand for the last two months, and other companies believe normalcy will return by Diwali. All paint companies are currently operating at nearly two-thirds of their optimum capacity. This is likely to ramp up in the near future.
Another interesting point is that demand is being driven by small-town and rural India. COVID-19 has impacted metro cities and urban India more than tier 2 and tier 3 cities. As a result, recovery outside the main cities has been faster. Even within the major cities, Mumbai, Ahmedabad and Delhi are recovering slower than southern metros like Bengaluru and Hyderabad. For the paint industry, rural and tier 2 and tier 3 cities account for nearly half of total sales.
Finally, industry leaders like Asian Paints and Berger Paints are going all out to revive consumer confidence. Consumers’ possible aversion to painters entering their homes is being mitigated by running safety campaigns, PPE Kits being offered to painter community, and offering their own painting services. Raw material environment for the industry is largely benign, but the gains have been tempered by softness in the industrial and automotive pain segments.
For decorative paints, there are visible green shoots and Asian Paints summed it up, saying that even as consumers get more value conscious, people spending more time at home will consider decorating their walls soon.
This is what each of them said:
Asian Paints:
Demand in June is much better than May
Tier 2 & Tier 3 CIties doing much better than Metro
Western region is still affected by lockdown
Bangalore and Hyderabad doing better than Mumbai and Delhi
Metro and Tier 1 cities contribute 50-55 percent to revenue
Overall recovery in June at 80 percent of June last year
Small portion of demand may have been lost
Expect maintenance demand to continue for the year
Difficult to say if FY21 volumes and value will be better than FY20
Capacity utilization at 60-70 percent, improving by the day
Have given PPE Kits to painters to assuage concerns of customers
Current quarter input prices lower than those a year ago
Berger Paints
Rural markets are doing better than pre-COVID Levels
Company's dependence on metros is relatively lower
Saw 45 percent decline in March volumes
Decorative segment to see year-on-year growth in June
Auto and industrial segments still weak, account for 8 percent of revenues
Important to see if June demand sustains, may be an element of pent up buying
Have pushed back non-essential capex
Pune plant is almost complete
Lucknow plant construction to begin in November
Kansai Nerolac
90 percent of paint shops have re-opened
Expect to reach normalcy in decorative paints soon
Rural demand better than urban
Tier 2 and tier 3 cities showing strong traction
March saw 80-90 percent decline in auto paint business, April was a washout
Auto sector is still a problem, expect some green shoots in Q2
Have postponed plant Vizag project by one year
Capacity currently is 5.5 lakh tonnes, utilization at 63 percent
Crude price has fallen, but crude oil derivatives have not gotten cheaper
Will be a challenge to hold on to these margins
Akzo Nobel
Volume decline in fourth quarter in line with revenue decline of 17 percent
April was a washout, June witnessing 80 percent recovery in sales
See larger demand coming from smaller towns
Metros currently locked down, so revenue impacted
Utilization of plants is at 50-55 percent
35 percent of revenue comes from industrial business, market leader in key segments
Company is the fourth-largest player in decorative paints
Target is to get back lost market share
