Indian paint companies are in a quandary. Major players like Asian Paints, Berger Paints, and Kasai Nerolac have reported a healthy fourth-quarter performance and say that the demand after the economy opened up post the COVID-19 lockdowns has been skyrocketing. But some macro factors globally, like a boiling crude, might hurt them in the near term.
Price hikes and demand
A report by Macquarie says that their ground check shows that Asian Paints has recently taken price hikes across its decorative portfolio with approximately Rs 3-5/litre increase and Rs 5/litre when it comes to water-based interior and exterior emulsions.
Speaking about the impact of the price rise to CNBC-TV18, after the company declared its fourth-quarter results, Amit Syngle, the managing director and CEO of Asian Paints, said that they were aware that future price hikes may begin to impact demand.
"To some extent, we saw that in quarter four, there was definitely some hurting in terms of the demand. At both the economic end (smaller towns and premium markets), there was a little bit of down trading and postponement," he said.
Factors impacting paint companies
Two major global factors are currently not in favour of the paint companies — rising crude prices and a depreciating rupee.
Crude oil is used in making paint and varnishes, and thus with Brent hovering above $120 per barrel, input costs for the above companies don't seem to be coming down quickly. Moreover, a weaker rupee will hurt these companies as they will have to pay more to import the other raw materials, too.
"We are guarding our increases because we don't want to miss out on the consumer sentiment, which is coming right now and so forth. But any further increases (in prices) are definitely going to hurt demand," the Asian Paints CEO had told CNBC-TV18.
The silver linings
The Macquarie report on Asian Paints, which is by far the biggest player in this segment, states that the company is well-positioned to achieve its
guidance of normalising gross margin back to 40-42 percent and, in turn, reach 18-20 percent EBITDA margin.
The brokerage's dealer checks show no material impact from the sharp price hikes in recent months, even after a sharp uptick of 15 percent between November and December last year.
"We believe demand strength influenced Asian Paint's decision to take another price hike in July 2022," the report read.
(Edited by : Amrita Das)
First Published: Jun 13, 2022 4:06 PM IST
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