Recovery in decorative paint demand as seen with the leading paint manufacturers in the second quarter of the financial year indicates not only the speedy revival of the industry but also demand led recovery of the economy as a whole. Hygiene factors, social distancing norms and non-availability of workers (due to reverse migration) – all seemed to have settled down in no time and its once again business as usual scenario. Indeed, paint manufacturers too were quick to adopt to emerging scenario and adjust their marketing strategies accordingly. Industry was, of course, aided by benign raw material prices.
But the use of phrase ‘business as usual’ may be slightly out of place in the current scenario because emerging trends are slightly different from what we normally see in the market. Market composition has changed in last few months and Metro cities are no longer the growth drivers for the paint manufacturers but it is the tier 2 & 3 cities and rural India from where maximum demand is coming. Accordingly, demand for premium product too has affected as the demand from economy products are on the rise. This has forced the paint manufacturers to change their focus and strategy. For example, Asian Paints has started focusing on large primer (undercoat) market, large part of which still remains untapped.
Due to the deterioration in the product composition (which in turn due to shift from premium to economy and lower category products) volume surge seen in recent times is not accompanied by corresponding increase in sales value. As a result, gap between value and volume is widening.
Double digit growth for market leader
Asian Paints, the market leader, reported double digit growth in volume of 11% YoY in the second quarter. According to the company, demand witnessed recovery in Tier 2 / 3 / 4 markets and have reached pre Covid levels, whereas metros and Tier 1 / 2 markets reported 70-80% demand recovery of pre Covid level. Economy, premium & some luxury ranges of products witnessed recovery in demand, with demand being more from economic range.
Volume growth through dealer network expansion for Nerolac
Kansai Nerolac witnessed volume growth of 15%in the second quarter and most of the volume growth was seen in the economy and lower end products. According to the company demand was concentrated in the Tier II and III cities. In the first quarter, the company could not add any new dealers but in the second quarter the number of dealers was increased by 4-5%. Part of the volume growth may be attributed to expansion of dealer network as well as better salience of putty.
Wider network in smaller towns helps Berger Paints
While Berger Paints recorded highest sales growth rate among the paint manufacturers, Akzo Nobel saw Year on Year decline. This is mainly because Berger Paints more focus on economy end emulsions and Akzo’s emphasis on premium deco products.
Berger Paints’ decorative segment volume growth at 15% YoY in Q2FY21 was one of the best in the industry. The strong volume growth was largely led by strong decorative paint demand in the semi urban and rural region where company has a stronghold as compared to the industry leader. Going forward, the management saw good demand traction in decorative paints supported by intact demand from tier 2 & 3 cities along with expansion into water proofing business. The company feels easing of restrictions in urban clusters will help to drive up premium products.
Akzo changes the track
Akzo Nobel recorded high single digit volume growth in the second quarter. Akzo too witnessed strong growth in tier2 and 3 markets (similar trend seen in peers). Considering 70% of paint market growth is in economy paints, Akzo too has introduced (much awaited) economy emulsion recently. After launching Interpon coatings (primers) in the first quarter, Akzo has introduced Dulux Promise SmartChoice in the economy segment in the second quarter. It also relaunched Dulux SuperClean, premium interior emulsion. Akzo plans to introduce multiple new products over next 12 months.
Fortunately, benign raw material prices helped the industry to maintain margin despite the deterioration in sales composition, that is, skewed more towards economy products than the premium segment. Decorative paint manufacturers are of the opinion that the raw materials will continue to remain benign in the third quarter.
Owing to the festive period occurring late after monsoons, paint industry got 15 days extra of sales compared to last year which will have a positive impact on topline. With the intensity of Covid receding in some of the major cities, demand from those cities is likely to add up to the topline of paint manufacturers in thecoming months. In all, recovery in demand in decorative paints seems to be smoother and much faster than one had anticipated.