The just concluded September quarter results (July to September 2020) brought cheer to major paint companies in India, thanks to improved demand for decorative paints across upcountry markets. The growth momentum appears to have sustained well into the October to December period, with month-on-month improvement in secondary sales (dealer to end consumers).
Asian Paints, the largest paint manufacturer in India, reported double-digit volume growth in its Q2 results; Kansai Nerolac reported a similar double-digit volume growth and finally, Berger Paints India, the second largest paint-maker in the country, surprised the street with a strong set of numbers.
Management commentaries and market sources point towards a strong pent-up demand and recoveries across upcountry markets, with urban markets finally looking up in “select areas”. For instance, some paint companies say demand in metros and Tier-1 cities has “improved” but it is still at 70-80 per cent of pre-Covid levels.
Mumbai has been the most sluggish amongst markets; Chennai and Bengaluru too remain in the slow lane. Cities in northern and eastern India have recovered at a better pace.
According to a report by research firm Nirmal Bang, released in September, demand conditions for the paint industry have “improved progressively” since May, driven by upcountry markets.
“Companies remain confident of the demand conditions with secondary sales improving month-on-month.
In terms of regions, Tier II/III/IV cities are expected to continue to do well. Even Metros and Tier-I cities are expected to bounce back both for decorative paints,” the report added.
According to S Mahesh Anand, President – Decorative Paint, Nippon Paint (India), there is still some apprehension when it comes to engaging service professionals like painters at home.
However, the work from home scenario has led to home owners becoming more cognizant of their surrounding aesthetics. It is (also) believed to impact their work productivity, with increasing amount of time being spent within homes.
“Consumers have consciously begun to spend more on home décor, renovation and decorative painting in a bid to improve their working environment. This holds tremendous scope for players like ourselves, in the home decor space,” he told BusinessLine.
In the decorative segment, re-painting constitutes 70 per cent of the demand in India.
“If there isn’t a second wave (of the pandemic), we expect demand for decorative paints to sustain in 2021,” Abhijit Roy, MD and CEO, Berger Paints India, said.
Over the years, the decorative paint segment (market share of 75-80 per cent) has grown at a CAGR of 11.4 per cent against the industrial segment (market share of 20-25 per cent), which has grown at a CAGR of 7.9 per cent.
Industrial segment is finally witnessing some recoveries too, say market sources. Auto coatings — except sales in the commercial vehicles categories — are back on the growth path.
Asian Paints, in its September quarter results, said it witnessed recovery in the auto segment with a strong uptick in passenger vehicles and 2-wheelers. OEM business reported good growth in Q2FY21 after a sluggish Q1FY21.
The re-finish business did sequentially better but is still lower than pre-Covid levels.
Kansai Nerolac, in its investor presentation, said: “Demand started looking up in industrial, September onwards.” Auto industry has gradually picked up (in September), and all segments of the auto industry are staging a recovery led by tractor and passenger vehicle segment. Ancillary production is also back on track and the company has “gained market share in automotive”.
However, sales in the infrastructure sector continue to lag for the sector, say sources.
Raw material costs
From a cost point of view, key raw material prices have been benign for most part of the year. But they are firming up over the last two months. Advertisement and employee expenses, which aided operating margin growth earlier this year, are likely to increase as normalcy resumes.
According to Berger’s Roy, around 5 per cent weighted average cost rise has happened (across key raw materials like monomers and titanium dioxide).
The company initiated price hikes in the industrial paints category and in “some items” of decorative paints.
“We are covered till end January and, depending on raw material price movements, a call will be taken on increasing price across offerings,” he said.
Incidentally, channel discounts have already tapered, in a bid to manage costs, say sources.
Nippon’s Anand maintained that there is an increase in raw material prices, and the company too is waiting for the industry to take this price revision forward in the coming year.
“The revised prices are likely to be in both the solvent and water-based products, and expected to happen somewhere in the first week of January for the decorative segment. We are anticipating further updates from the industry on this,” he said.