For decorative paint manufacturers, year 2019 has begun on a positive note as the demand during the first quarter of the calendar year showed a strong growth. An informal chat with a cross section of the paint dealers reveal that demand for decorative paints during the first quarter was buoyant with East and North India leading the pack. Scenario was almost identical for adhesives & sealants segment too which also showed strong growth during the first quarter. Its safe to estimate a volume growth of around 15% during the quarter for decorative paints and adhesives and sealants.
Prices remained stable
Price-wise there was stability in the market with major paint makers continuing with no increase in the price during the quarter. The only exception was Akzo Nobel which hiked the prices of its products marginally by 1-1.5% in the month of February. Adhesives & sealants segment too exhibited stability in prices during the quarter. Also, dealers say that none of the manufacturers have mentioned anything about the price hike in the new Financial year either. The paint manufacturers may be waiting for the general elections to get over and the presentation of the first budget by the new government.
However, there is nothing surprising about no-price hike quarter for the paint industry as the costs too moderated during the period. Paint makers were also helped by tailwinds from GST rate reduction last year from 28% to 18%. In fact, continued moderation in cost encouraged paint makers to pass on part of the cost savings by way of dealer discounts. On an average, rebates offered to dealers were 2-2.5% higher than usual.
Elections & labour shortage may impact demand
While East and North India showed robust growth in sales growth for paints makers, South and West followed them with healthy demand. Dealers are positive about the prospects in the current quarter too, the only negative playing on their mind is the forthcoming general elections. Also, another factor which might affect demand is the labour shortage in the market which has been the case since the Holi festival.
Organised players gain market share
There were visible signs of market share gains for paint makers in the organised sector in the second half of the previous calendar year and the trend continued in the current year too. Higher despatches in the in the distemper/putty categories clearly indicate the paint makers in the organised sector have been able to snatch the market share from players in the unorganised segment. Some dealers also pointed out that there was some weakness in institutional/project sales which has been made good by healthy retail sales. Institutional sales are also affected by tight liquidity conditions prevailing in the market. The situation is likely to improve once the liquidity condition eases in the market.
Competition becoming intense
Another factor pointed out by the dealers is the increasing intensity of competition in the market. It seems Akzo Nobel is making all out efforts to gain market share and has started appointing distributors in some regions. This strategy is in departure to company’s earlier policy of following direct dealership model.
Among the various regions, competition in the southern market was highly intense. Some paint makers like Kansai Nerolac and Nippon Paints are focusing on increasing their dealer network in the region. Some of the paint makers are reportedly trying to pull the exclusive dealers of market leader by offering better incentives and free tinting machines. Its also reported that Asian Paints, in an effort to stem market share losses, has stepped up promotional offers in key markets in this region.
During the quarter, market leader, Asian Paints introduced anti-bacterial emulsion paint, Royal Health Shield and anti-rust enamel paint, Apcolite Rust Shield and both these new paints have seen encouraging response from customers. Advertising campaign starring Bollywood celebrities, Deepika Padukone and Ranbir Kapoor has also helped in pushing up the sales of Royal Health Shield.
Adhesives, etc. to see strong demand
Adhesives, sealants and water proofing segment too exhibited almost similar trend as in case of decorative paints during the quarter. Further, there were no price hikes by the manufacturers in this segment during the quarter. It may be recalled here that in December 2018, Pidilite had hiked the prices of its Fevicol products after that there has been no change in the price of the end products.
However, there is little apprehension about the next two quarters, that is, second and third quarters of this calendar year. Upcoming general elections and uncertainties surrounding the next government will impact the demand at least till the next government is formed. After that, new budget and how the Monsoon pans out will decide the demand scenario in the immediate future.