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Latha Venkatraman

Mumbai , April 22

A ROBUST growth in the housing sector and other end-user segments of the paint industry is probably one encouraging sign in a scenario beset with rising input costs and VAT hitches.

Paint companies believe that while the implementation of value-added tax augurs well for the sector, the initial glitches could impact sales.

However, continuing demand for paints both in the decorative as well as the industrial segment is seen negating any downturns.

Overall the industry should be able to post a 5-15 per cent increase in topline during the March 2005 quarter despite a strong trend in crude and solvent prices.

For an industry in which raw materials take up 50 per cent of the revenues, the Government's decision to reduce Customs duty on imports of some of the raw materials is expected to prove beneficial.

"At least 30 per cent of the raw materials are imported. A reduction in Customs duty on imports to around 20 per cent is good news for paint companies," said an industry official.

The Finance Ministry's decision to retain tax concessions on housing loans is also a positive step as it would help maintain growth in the housing sector. Asian Paints, with a large presence in the decorative segment, should be able to benefit from these decisions, industry representatives said. The company had increased prices at the consumer end in December 2004. This move did help in mitigating the impact of margins coming under pressure. However, Goodlass Nerolac resorted to a staggered increase in paint prices. But the company is expected to turn in a reasonably good performance for the fourth quarter and the full year of 2004-05.

The first quarter of the new fiscal may show up slackness in offtake because of the implementation of VAT, an official at a paint company said.

"In States where sales tax was below 12.5 per cent, there would be some decline in offtake for sometime," he said.

A possibility of a price hike by paint companies in the near future has been completely ruled out until VAT implementation is complete and sales return to normality.

At the moment paint companies are waiting on the sidelines to see how VAT becomes effective. Paint stocks have also been range-bound on the BSE for the last one month.

Shares of Asian Paints have moved in the range of Rs 390-395, Goodlass Nerolac around Rs 510-520 with an occasional spurt to Rs 548 on April 12. The stock of Berger Paints moved within Rs 41 and Rs 44, while that of ICI India was around Rs 220-225.

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