Paint manufacturers are hugely encouraged by the sales seen during the third quarter of the financial year as the growth in volume was broad based as compared to the first half of the financial year. All the top four paint manufacturers have registered decent to good growth in the volume as well as in value terms. Recovery of paints business also indicates that the economy is back on track of recovery and most importantly some of the earlier problems of real estate slowdown and reverse migration of workers have become a thing of past.
Growth was aided by many factors
Paint manufacturers, especially decorative paint manufacturers are also aided by the delayed festive season this financial year which gave the suppliers more time to sell their products post withdrawal of Monsoon. Deferred marriages and pent-up demand from previous quarters also contributed to the strong sales growth during the third quarter.
Further, leading paint manufacturers also say that unlike previous quarters, premium and luxury segments also exhibited strong growth across all regions in the third quarter. While rural India continued to drive demand, metros and tier 1 cities too participated in driving up the demand during the third quarter. While economy emulsions have done well, demand for the mid-premium/premium segment has also picked up.
Asian Paints saw its premium products growing
According to Asian Paints, projects and large institutional businesses have seen good growth, in line with recovery in construction and industrial activity. Unlike previous quarters, premium and luxury segments also exhibited strong growth across all regions. The company has gained market share in the first half of the current financial year as it has grown faster than organized firms, and there is also a shift happening from the unorganized to organized sector.
Broad-based recovery for Kansai
Kansai Nerolac’s performance reveals that recovery was broad-based and not economy-driven like earlier, though exterior emulsions have slowed down a bit. The company has seen better recovery in upcountry towns than tier 1/metro cities, though tier 1 towns have seen sequential recovery.
Berger sees its construction chemicals doing well
In case of Berger Paints, economy emulsions have done well while the mid-premium/premium segment has also picked up. Construction chemicals also showed robust growth, especially in waterproofing.
Akzo’s newly introduced products received well
Akzo Nobel too registered a strong double-digit volume growth for the quarter, aided by revival in demand across their paints, powder, marine and packaging coatings businesses. The company’s new launches like Dulux Promise SmartChoice (a water-based economy emulsion), Dulux SuperClean (washable paint) and Dulux SuperCover, premium emulsion with antibacterial properties have been received well.
Raw material prices are a worrying factor
Though the dust seems to be settling down on demand side, concerns are increasing on raw material side. Raw material prices are on an upswing, starting in December 2020, the impact of which will be seen from the next quarter. Most of the raw materials used in paints industry are crude oil derivatives the prices of which are on the upswing in recent months with no signs of abating.
Currently, inflation in raw material is 6-9% YoY, and paint manufacturers may react differently to the current situation. While Asian Paints is currently following wait and watch policy, Kansai Nerolac has already raised the prices of some of the items and may do so in case of some more products in coming weeks. For Berger Paints, raw material prices may not have much impact at least till the end of this financial year as the company has already negotiated terms with the contract manufacturers.
However, stable dollar-rupee exchange rate is the only saving grace for the paint manufacturers which otherwise would have added to their cup of woes. However, in case of sustained price rise of raw materials the company may have to take a call sooner or later.
Apart from volatile raw material prices the industry also faces uncertainty in terms of real estate demand recovery. At present, the real estate industry is seeing a surge in demand aided by some local incentives (like subsidised stamp duty rates) and benign mortgage rates. However, one has to see whether the demand for new homes sustains at the current levels even if these trends change in future.
Also, in the long run, Grasim’s entry into the industry may have some disruptive impact on the market. Enhanced competition, though good for the consumers, may cast a shadow of uncertainty in the market in medium to long term in the industry.