Momentum in housing and automobile sectors will keep the paint sector fresh and vibrant in the forthcoming financial year. Demand growth in emulsions, exterior paints, powder and auto coatings will lend a sheen to overall paint growth.
According to analysts, the demand for paints was expected to grow at a moderate rate of 8-9 per cent in FY03, primarily driven by the demand for decorative paints.
The demand for decorative paints was expected to be robust owing to increase in purchasing power and sustained growth in the housing sector.
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The segments influencing the demand in decorative paints were expected to be emulsions and exterior paints, on account of the availability of a wider product range and the ease of application.
The demand growth rate in the industrial segment was estimated to be 6-7 per cent, primarily driven by growth in powder and auto coatings. Supply was expected to move in line with increase in demand.
However, the industry leader in automotive paints Goodlass Nerolac Paints (GNP) has a virtual monopoly with a market share of about 43 per cent. Offtake by clients such as Telco, Maruti and Hyundai were set to soar thanks to a buoyant commercial vehicles market, analysts said.
The company was positioned at No 2 in the domestic paints market, a shade behind Asian Paints. For the third quarter ended December 2002, GNP has reported 14 per cent increase in sales to Rs 178.11 crore.
The rise in sales had to be viewed in the context of recovery in commercial vehicle (CVs) demand and improved performance by players like Telco, Maruti, Mitsubishi and Toyota in the passenger car segment.
On a larger picture, realisations of paint producers were expected to improve marginally, owing to increase in the share of high value paints in total paint sales, subsequent to the higher growth in exterior paints in the powder coating segment.
However, operating margins were expected to be under pressure owing to an increase in the raw material and selling expenses.
Operating margins were likely to improve only marginally following customs duty cut. The reduction in the customs duty on paints was not expected to have any major impact on paint producers, as the quantum of imported paint was insignificant.
In the last budget, the customs duty on paints, dyes, varnishes and inks was reduced from 35.2 per cent to 16 per cent for the year 2003-04. However, there was no cut in excise duty and it was constant at 16 per cent, on par with customs duty.
However, reduction in the customs duty on inputs, such as titanium dioxide and phthalic anhydride (PAN), would have a positive impact on the operating margins of paint players because raw material costs account for approximately 65-70 per cent of the cost of production. Out of this, around 30 per cent of the raw material requirements were imported.
The budget had sought to reduce customs duty on titanium dioxide and phthalic anhydride to 30 per cent from 35.2 per cent. There had been no cut in customs duty on orthoxylene which was at 19.6 per cent.