The Hindu Business Line : Automotive paint companies hit by industry slowdown

Snapshot
Kansai Nerolac has reported a 12 per cent drop in net profits this quarter
Asian PPG sees topline dipping by 10 per cent going forward
Paint manufacturers in the decorative segment are not likely to face slowdown pressures

Purvita Chatterjee

Mumbai, Dec. 1 Slowdown in vehicle sales has taken the sheen off domestic automotive paint companies, that are now brushing up to face tougher times in the future. Paint companies catering to the automotive segment, such as Kansai Nerolac and Asian PPG, are facing pressure on their bottom-lines, as demand for automotive paints has shrunk due to the tight liquidity conditions faced by auto majors.

While market leader in automotive segment, Kansai Nerolac, has reported a 12 per cent drop in net profits this quarter, Asian PPG (a 50:50 joint venture company between Asian Paints and US-based PPG) has also faced a dip in profits and is expecting its topline to decrease by 10 per cent going forward.

LOW INPUT COST

Speaking to Business Line, Mr H.M. Bharuka, Managing Director, Kansai Nerolac Paints, said, “The paints industry is closely linked to auto industry. We, being a leader in automotive paints, have been facing a slowdown as clients are cancelling orders to reduce their inventories and this reduced off take is affecting both our top line and bottom line. In the first six months of this year while our top line has grown by 11 per cent, there has been a 12 per cent dip in profits. The next six months are not looking too good for the paints industry.”

Being OEM suppliers to the largest car manufacturer, Maruti, whose sales are down by 8 per cent in October, Nerolac expects reduced raw material prices in the paints industry to take care of dampening demand in the days ahead. As Mr Bharuka adds, “Raw materials prices have been coming down for paints although we still have our fixed over heads. Hopefully with some amount of re-engineering we will be able to reduce our costs and bring our bottom lines back on track.”

DECORATIVE PAINTS UNFAZED

Meanwhile paint manufacturers in the decorative segment are not likely to face slowdown pressures immediately as the housing industry especially consumers looking to upgrade their homes are not necessarily looking at cutting costs. “While new housing projects may get affected, the refurbished housing segment has not seen a dip in demand for decorative paints and so players like Asian Paints who are leaders in decorative segment have not been impacted by the slowdown,” observes Mr Bharuka.

SALES MAY DROP

In the case of Asian PPG Industries Ltd, the second largest supplier to the auto segment in India, there is expected to be pressure on the bottom lines and top lines in the future.

“Most of the auto companies are not working to their full capacity and we see a stronger drop in their sales in the future. The passenger car segment, which is the largest segment, has seen a 10 per cent drop in sales and we expect our topline to also dip by an almost similar amount between 10 and 15 per cent,” states Mr V.S Ram, Chief Executive, Asian PPG Industries.

With auto clients such as Hyundai, GM, Ford, Tata Motors, Mahindra & Mahindra and Fiat, Asian PPG currently has a 32 per cent share in the automotive paints segment and is looking at managing its costs better to beat the slowdown.

“We have to manage our costs better to stop the dip in our profits. As financing options improve and interest rates drop and with the election year ahead, we expect better times for the industry,” added Mr Ram.

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