Feedback received from some of the dealers reveal that decorative paints saw a healthy demand during the just concluded fourth quarter which helped the paint manufacturers to overcome some of the headwinds which were present in the market. Raw material prices were increasing and second wave was making all efforts to erupt but it was a smooth sail for the paint manufacturers in the just concluded quarter. Given that the fourth quarter of FY 2020 was weak one as the Coronavirus had started gaining ground and countrywide lockdown was announced, Q4FY21 might have registered a growth of more than 20%.
An interesting fact about the fourth quarter’s growth is the broad-based demand seen which was an improvement over the previous two quarters where demand was mainly seen in rural India. Demand was strong in both, tier-1 and rural markets, given resumption of normal economic and household activity along with an element of pent-up demand. Recovery in real estate activities too added to the demand for paints. Demand from dealers was more pronounced towards the end of March, as they were notified of price hikes being taken in certain products across major brands which led to inventory up-stocking.
Premium paints in demand
Both exterior and premium paints seem to have fared well sequentially. Further, the premium paints vertical saw good demand in the fourth quarter, with higher salience than the previous quarter across various dealer outlets as the normalcy had returned Metro cities which are the growth centres for the premium products. Demand for exterior paints picked up with uptick seen in repainting work in individual houses/apartment complexes and new projects. Meanwhile, products like putty, primer, adhesives and waterproofing continued to witness a good and steady demand.
Sporadic price hikes
Usually, it’s the market leader who takes the lead in hiking the prices in the industry but this time around proved to be an exception as Asian Paints restrained itself from increasing the prices despite having enough provocations. As a result, fourth quarter didn’t see any major price hike though the raw material inflation was going up. Only Kansai Nerolac increased the prices of few emulsions and wood finish range by 5-6%. Nippon Paints was another major player who took price hike of 3-4%. However, these price increases are modest and inadequate to offset high inflation. However, new financial year may see major price hikes as the raw material prices do not show any signs of softening. According to the available reports, manufacturers like Kansai Nerolac, Indigo and Berger have hiked the prices of their products from 1st April. It is also expected that market leader, Asian Paints, is expected to hike prices from 1st May. However, the quantum price hike is expected to be modest 3%.
Since the demand conditions were favourable, promotions, schemes and discounts offered by paint companies were not conspicuously high, and remained similar to the last-year levels.
Input costs are rising
However, rising raw material price is the major area of concern for the paint manufacturers as the industry is uses more than 300 materials and most of which are crude oil derivatives. Due to an uptick in crude oil prices which is up 19% YoY & 35% QoQ and TiO2 (up 24% YoY & 16% QoQ), the paints industry is currently facing huge inflationary pressure.
Outbreak of the second wave of Covid-19 is another headwind for the industry as some states have already announced localised lockdown which may puncture the demand revival seen in recent months. Also, there is reported reverse migration of the workers is taking place which may impact construction and painting activities which in turn may affect the demand.
However, on the positive side, it has been reported that most of the construction companies and developers have been able to hold back their workers through incentives and the impact of the reverse migration so far may not be more than 10-15%. If the momentum doesn’t gain ground in the coming weeks and the vaccination drive, on the other hand, gains full momentum the situation may be brought under control. If that happens paint manufacturers may sail through this financial year comfortably.