HomeIndustry TrendsPaints industry’s growth on expected lines in Q3

Paints industry’s growth on expected lines in Q3

Indian paints industry (especially the decorative paints industry) is one of the very few segments in the economy which has been consistently registering attractive growth over many years while enjoying fat margins. The decision of big business houses like Birlas and Jindals to enter this lucrative business is in itself a testimony of the industry’s past performance and also future prospects. It’s one of the few industries which recovered very fast after Covid-induced lockdown.

Performance on expected lines in Q3

Industry’s performance during the third quarter of the current financial year is on expected lines. Dealers’ survey showed that festive demand was good this year meaning there was good volume growth during the first two months of the quarter. However, volume growth was softer during December compared to previous two months. It may be noted that most of the paint manufacturers resorted to price hikes in November and December. For example, Asian Paints, the largest paints manufacturer in the country hiked price four times during the financial year of which twice was in the third quarter – in November and December.

Robust project business

An important feature of the third quarter performance was clear indication of the revival of the real estate industry which is visible in the increased demand from projects. Paints being the last material bought by the real estate industry in the construction of buildings and also most of the projects launched in 2019 may be reaching the completion stage now due to construction halts enforced during lockdowns present demand spurt is on expected lines.

Also, there is steady revival in real estate transactions due to reduction in stamp duty in some states,  lower interest rates and ongoing economic revival. For example, housing registrations in Mumbai in December 2021 were 50% higher than the pre-pandemic period of December 2019 setting a 10 year high record for the month of December (barring December 2020).

Paint sector generates 10% of its revenues from projects (i.e., real estate developers) and according to sources in the paint industry, there was strong growth (YoY) in paint demand (Projects business) in December 2021 quarter too. Usually, Paint demand has a lag of 1-2 months from real estate registrations.

No big launches

Despite the decent growth in volume there have been no big launches/re-launches during the quarter by the paint manufacturers. Usually, paint manufacturers time their launches during the beginning of the festive season but this year was an exception. This may be due to the fact that the paint manufacturers are not sure about the sustenance of the present growth momentum especially due to the Covid threat.

Dealers benefited from price rise

Whether the paint makers benefited from the 3rd quarter volume surge during the festive season is debatable but it was a good time for the paint dealers. Due to series of price hikes by the paint manufacturers dealers’ commission too increased in absolute terms. Also, the revenues for the dealers have further increased with higher trade schemes.

Rising input prices

Input prices have continued to rise YoY and QoQ. Commodity inflation in Q3FY22 (YoY) was 26-145% across commodities. Of late, there is a slight reduction in key input prices, MoM basis. Crude oil price is down 20% from its recent peak and most of the raw materials of paints industry are crude oil derivatives and their prices react after a lag of few months. Interestingly, price of Titanium Dioxide, the main raw material paint manufacturing, is hovering around at its peak price of Rs 425/kg for last couple of months. Meanwhile, fuel price is also on correction mode and diesel costs are down 12% after hitting a peak in October 2021. Paints are a bulky and freight-intensive items and freight cost formed 6.2% of total sales in FY21 for Asian Paints.

Frequent price hikes

When raw material prices are rising and consumer demand is strong you cannot expect a stable price regime. Most paint companies have taken cumulative price hikes in range of 22-25% YoY. The prices were raised in 2 tranches during the quarter, 8-14% on 12th November and 4-6% in first week of December.

Now the users are anxious to know the price behaviour during the fourth quarter. Paint users are of the opinion that another hike in price may not come through as the prices of some of the raw materials have started moderating. Also, emergence of Omicron may force the government (at least in some cities) to go for another round of restrictions which may affect the demand in general and that for paints in particular. In such scenario hiking price may impact the demand.

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