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A hint of a revival on the back of a strong monsoon and buoyant festive season sales are likely to be washed out by high inflation for paint companies that were hoping for a better performance in the second half of the year.
For the last two years paint majors had been reeling under the economic slowdown.
“The strong monsoon had a positive rub-off, but latest inflation figures may further hit the industry. The past couple of years have not been very rosy, but we are expecting a 12% volume growth this fiscal,” said Ramakanth V Akula , president (decorative) at Nippon India.
Mainly driven by high vegetable prices (food prices soared by an annual 14.72%), the retail inflation rate accelerated to an all-time high of 11.24% in November (from 10.17% the previous month) According to him, another price hike may not be on the cards as a couple of them have happened already during the year.
The industry, so far, has already hiked prices by about 7-9% during the fiscal. While a high inflation would dent the demand in market, on the other hand, importing raw materials and effort to save bottom lines may force companies to take another price hike.
The urban demand has slowed down as paints is part of the discretionary spends so many people are choosing to postpone their investment for painting and repainting needs.
“Value growth should be around 15%,” added Akula who was a former president of Indian Paints Association also. The market size, at present, is above Rs 29,000 crore. Even a value growth of over close to 15% would be lower by over five% of compared to the growth in previous fiscals.
A senior official from a Japanese paint major echoed a similar concern by saying that raw material prices may affect the bottom line in the long run.
“I think, the volume growth would be 10-12% especially after considering the latest inflation data. New projects are not being taken into advanced stage and some key raw material imports continue an impact on profitability,” the official said, adding that low-end products were being offered with special coating features to drive sales.
The only relief for the paint companies seems to be coming from China. Rutile, key raw material, is being sourced by most companies as it is cheaper than European rutiles. The former is cheaper by about $500 per tonne. “The China advantage is coming as a bit of relief,” the official of Japanese paint major added.
