Paint sector upbeat on raw material duty cut

In a scenario when input costs pressures were hurting the consumer industries, paint companies found a window of relief from the Union Budget.

The finance minister announced that customs duty on titanium dioxide and pigments and preparations based on titanium dioxide will be cut from the current 12.5 per cent to 10 per cent, paint companies were among the largest beneficiaries. Titanium dioxide is a key input in the paint industry and makes up 12-15 per cent of the total raw material costs.

The cut in duties on titanium dioxide is also expected to rub off on consumer goods ranging from cosmetics and skin care products to toothpastes. However, in these categories it makes up only 2-3 per cent of the raw material costs.

Analysts pointed out that the Indian paint companies source titanium dioxide from American chemicals giant, Du Pont apart from the Kerala-based public sector undertaking, KMML.

Only last month, the paint companies had increased prices by 1-2 per cent. However, senior executives from the companies highlighted that it was too early to comment if they were going to cut paint prices.

Companies such as Asian Paints, which saw operating profit margins fall by 50 basis points in the December quarter on the back of raw material costs increase, welcomed the move. The paint industry imports nearly 30 per cent of its raw materials.

Ashwin Dani, vice chairman and managing director, Asian Paints said apart from the cut in customs duty, the 1 per cent drop in central sales tax (CST) would also boost profits.

H M Bharuka, managing director, Kansai Nerolac Paints added, "The reduction in duty on crude oil by 15 per cent and the exemption of an additional CV duty of 4 per cent will positively affect the paint industry. Reduction in peak custom duty will be beneficial for paint companies since key raw materials required for manufacturing paints are imported."

Titanium dioxide is used to provide whiteness and opacity to products such as paints. The current global spot price of titanium dioxide is at $2,000 a tonne. The Rs 10,000-crore domestic paint industry is estimated to have imported raw materials worth Rs 1,800 crore annually.