The Hindu Business Line : Paint companies margins under pressure in Q1

DESPITE a reduction in Customs duty in the Union Budget and the strengthening of the rupee, the margins of the domestic paint industry remained under pressure in the first quarter of the fiscal.

Due to the increase in crude prices and its resultant impact on the prices of petrochemicals, paint companies have been attempting to tackle an increasing input-cost scenario for the past eight quarters.

In the first quarter of the current fiscal, four of the top five paint companies (barring Asian Paints) saw a jump in raw material costs as a percentage of sales compared to the same period in the last year.

For instance, raw material costs as a percentage of sales for Goodlass Nerolac increased from 65.4 per cent in April-June 2004 to 68.2 per cent in April-June 2005.

Similarly, raw material costs, which stood at 58.4 per cent as percentage of sales for ICI Paints last year, increased to 65.47 per cent.

In the case of Shalimar Paints, this figure increased to 60.8 per cent from 55.96 per cent earlier.

The soaring raw material prices have impacted the smaller players more significantly.

The Indian Small Scale Paint Association (ISSPA), which claims a market share of 45 per cent of the Rs 6,500-crore domestic paint industry, had recently urged the Petroleum Ministry to intervene in order to ease the impact of the 50 per cent increase in prices of mineral turpentine oil (MTO) over the past few months.

The association has recently written to the Petroleum Minister stating that the 50 per cent increase in the prices of MTO cast a "crushing burden on the small scale paint industry."

The ISSPA claims a membership of about 1,500 small-scale manufacturers.

Industry officials, meanwhile, said that a positive development for the paint industry is the revival seen in volume growth with sustained expansion in the real estate sector.

A price hike effected by major paint manufacturers in the last quarter too had helped in easing the pressure on margins. "Another price hike in the near future may, however, be unavoidable as crude prices are likely to remain firm at the current levels," an official from a leading paint manufacturer said.

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