The Hindu Business Line : Firm crude price may dim paint stocks

Leader of the pack Asian Paints, which made its 52-week high, today finished a shade below. The Berger Paints stock, on the other hand, was up over 7 per cent with substantial traded volume touching its 52-week high.

The other active stock in the sector was Snowcem, which moved by around 3 per cent with unusual traded quantity. According to dealers, the company, which was reportedly up for sale, has of late been attracting attention of certain operators.

The costliest stock, Goodlas Nerolac closed 0.69 per cent down today at Rs 470. This was despite the recent FIPB nod for its foreign promoter to raise its stake to 75 per cent from 64.52 per cent. Interestingly, Jenson & Nicholson (a loss-ridden company) attracted substantial volumes.

According to analysts, despite positives such as demand increase and proposed reduction in peak customs duty on raw materials from 20 per cent to 15 per cent, the high crude oil price has pushed up prices of resins and solvents.

According to Mr Devarsh Vakil of Anagram Stockbroking, the raw material price is crucial to margins for the paints companies. About 50 per cent of the inputs used are petroleum based and the industry imports around 30 per cent of its total raw material requirements, primarily titanium dioxide. "There is definitely a pressure on margins on account of raw materials", he added.

According to an investment advisor, some of the stocks of the sector have potential to attract FII investments at current levels, but lack of liquidity has been considered a dampener. "The sector is also poised for consolidation. Two of the seven listed players in this sector have gone off-colour, while numerous small unlisted units are gradually being marginalised", he observed.

Some foreign players are seriously looking into the possibility of entering the fray. Once the construction sector takes off to higher activity orbit in the next few years, major shake-off and market share reorganisation would be possible, an industry analyst said.

According to Indian Paints Association sources, of the Rs 4,500-crore domestic market, around 70 per cent is currently claimed by the top big players. Majority of the demand is for the decorative segment while the industrial segment is showing gradual increase.

The other positive trend was foray of the domestic companies such as Asian Paints and Berger into overseas markets.

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