Longer monsoon likely to pale paints picture

The paints industry normally looks brighter after a good monsoon. But this year's rains could turn out to be a dampener with consumers having been left with too little time to carry out painting jobs, thanks to a prolonged monsoon as well as rising raw material costs.

The industry carried out a price revision in July. But now, with the skies still pouring in some parts of the country, the industry says that though the topline will see a certain increase, bottomline gains are unlikely.

"The recent price increase will give a boost to the topline of around 2 per cent. However, there will be negligible increase in bottomline owing to the increase in raw material prices in the recent months," said Abhijit Roy, general manager, marketing of Berger Paints India, one of the leaders in decorative paints business. The industry PBDIT in 2002-03 is 8.7 per cent.

Adds M R Rajaram, executive director and chief financial officer, ICI India Ltd, "In the past few months, prices of raw materials has gone up, as a result costs have increased. On the other hand, companies have raised prices. Though there is bound to be a positive effect on the topline, the bottomline may not increase substantially, since any gains accrued from the increase in volumes will be offset by the increase in costs."

Normally, the second half of the year till around Diwali is the peak sales season for the decorative paints business""the first half of the year contributes only around 40 per cent of sales.

While the rains have brought cheer among consumers, industry is expected to have lost a lot of business as rains continued for a long time this year.

"Despite dampening factors, the industry volumes will grow at around 12 per cent against 6 per cent last year," Rajaram says. There will be an increase in the purchasing power next year.

"The real effect of this year's monsoons will be felt next year," he adds. Much of this year's growth will come in the second half of the year with a volume growth of 15-16 per cent.

Of the Rs 6,000 crore industry, of which organised players command around 60 per cent, the size of decorative sector is 70 per cent and industrial paints 30 per cent.

Since the fastest growing sector is the exterior (decorative) segment, the organised sector companies are focussing on providing painting service to consumers and support to architects and builders.

Growth of the industrial paints business is commensurate with growth in automotive business. Since automobile sales this year is expected to grow around 10 per cent, industrial paints sales is expected to grow at 10 per cent. This will again better than last year's 6 per cent growth.