HomeIndustry TrendsPaint manufacturers learn to live with uncertainties

Paint manufacturers learn to live with uncertainties

The paints sector though witnessed double digit growth in revenues in the fourth quarter of the last financial year, it was mostly driven by price increases as most of the manufacturers reported either flat or negative volume growth in the quarter. Of course, fourth quarter was disturbed by the outbreak of Omicron in January and February and later outbreak of war between Russia and Ukraine which impacted the raw material prices.

Price hikes continued in FY23 too

War is still continuing in Eastern Europe which has ensured that volatility in the raw material market will remain for months to come making the life of paint manufacturers difficult and unpredictable. As a result, regular price hikes have become the new norm of the industry which has continued in the new financial year too. For example, Kansai Nerolac has taken price hike of 3% ahead of industry in solvent-based emulsions. The company doesn’t rule out further price hikes if the raw material inflation persists. Berger Paints also took 3% price hikes in decorative paints in the new financial year to pass on the increased cost to consumers. Market leader, Asian Paints too took 2% price hikes. However, the company feels that further price hikes could hamper demand related to price elasticity, associated with paints as a discretionary category. Indigo Paints too took minor price hikes in April and May.

Demand grew in major cities

An analysis of sales of major paint manufacturers reveals that major cities are less price sensitive as compared to say, tier 3 & 4 cities. For example, in case of Asian Paints, T1/T2 centres grew in double digits, especially in the luxury & premium range. The growth was higher than that witnessed in T3/T4 centres, which were impacted by the high inflation and steep price-hikes taken. Berger Paints too echoed the same view – tier-1 and larger cities grew faster than smaller towns. For Kansai Nerolac, decorative volumes declined by 7-8% in 4Q, as the company lost market share in North India in the deco industry which management attributes to lower marketing spends. For Akzo Nobel, growth was led by the premium category, project business and new launches in Tier-1/urban markets. Also, the company has gained market share in select product categories and geographies.

Demand was robust in coating business

Though decorative paints showed signs of weakness, especially in smaller towns, some of the other segments have reasonably done well say most of the manufacturers. According to Berger Paints, protective and infrastructure business continued to show robust growth. Kansai Nerolac believes that the economy segment has a robust portfolio in both, the soldier range and Nerolac, and is well poised to grow along with the market. According to the company, growth in the economy segment is a function of price promotions/schemes, as it caters to price-sensitive consumers. For Akzo Nobel, in the coatings business, demand was buoyant in the infrastructure, power, mining and packaging sectors, driving double-digit growth across most businesses.

Meanwhile the manufacturers have adopted different strategies and tactics to maintain and expand their market share. The incumbent manufacturers are also aware of the fact that few quarters down the line there will be even bigger disruptive event in the form of entry of Birla Paints. Asian Paints has already expanded its distribution footprint in big-city suburbs and T3/T4 cities. It now has presence across 1,45,000 retail points, with a unique model entailing co-existence of distributor and direct dealer. Kansai Nerolac, on the other hand, has a network of around 27000 dealers which it expects to grow by 8-10% YoY, with 80-85% installed with tinting machines. Further, the company plans to ramp up its investment in schemes, to grow in the sub-segment. To fast-track growth, Indigo Paints has identified 750 towns/cities in tier-1/2 regions, where it is targeting aggressive expansion. It already has a dealer network in these towns, where it will engage more with painters to extract added output.

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