"We are expecting the industry to grow by only 10-12 per cent this year as against 15-16 per cent last year, owing mainly to the slowdown in the auto and manufacturing industry," said Kansai Nerolac Managing Director H M Bharuka. Other paint companies also expressed similar concerns.
The reason is not hard to find. There has been a slowdown in industrial activity and this has put the brakes on the demand for paints. The production of consumer goods declined 0.1 per cent in March. It was up by just 5.7 per cent in 2007-08, down from 10.1 per cent in the previous year.
The automobile industry saw a five per cent sales decline in 2007-08 as the high interest rates choked consumer demand.
Slowing demand and high input costs are expected to hurt the profitability of companies such as ICI India, Asian Paints and Kansai Nerolac. The industry has been a good barometer of industrial activity in the country for long.
To offset the impact, some paint makers plan to raise the prices between 3 per cent and 6 per cent. Industry experts say that would be a bold move in a sluggish market. "Since the industry was doing well, no one had anticipated such a slowdown. If prices are increased to offset the margin pressure, it will affect the sales further, adding to the slower growth in the industry this year," said Abhijit Roy, vice-president, sales & marketing, Berger Paints India.
The Rs 11,000-crore paint market comprises two segments, decorative (70 per cent) and industrial paints (30 per cent). While the decorative segment has grown 18 per cent in the last one year, the industrial paints business has expanded by just 5-7 per cent.
Manufacturers, however, are bullish on the decorative paints segment. Emulsions are said to be growing at over 25 per cent on the back of robust demand from households. "With some moderation expected in housing loans interest rates, the next quarter could see strong demand for decorative paints from the housing and construction business," said ICI India Director M R Rajaram.
Paint makers are also facing higher input costs. For example, the cost of mineral turpentine oil, a crude oil derivative and a major component of decorative paint, has gone up by nearly 50 per cent over the last six months.
"There are two factors affecting the paints industry right now. One is the rising crude oil prices and the other is the falling rupee. The twin damage is affecting the margins of paint manufacturers, and hence most companies may take a hike of up to 6 per cent in the coming months," said Anand Shah, sector analyst, Angel Broking.
