The Hindu Business Line : Rising crude prices — Paint industry's burden may fall on consumers

ANY further rise in crude oil prices may prompt Indian paint companies to consider a price hike, especially in the decorative segment of the business.

Almost all of the raw materials used by the paints industry have a direct co-relation to crude oil.

"The way the crude oil prices have been rising, our costs have risen tremendously," said Mr H.M. Bharuka, Managing Director, Goodlass Nerolac Paints Ltd. "To whatever extent we have been able to absorb the increase in raw material costs, we have done so. Now, the time has come when we may have to pass on some increases to consumers," Mr Bharuka said.

Goodlass Nerolac has been able to get price increases from its industrial customers. The company is in the process of contemplating a price increase in its decorative segment products. Currently, Goodlass Nerolac has a 55:45 ratio presence in decoratives to industrial paints.

According to Mr Bharuka, refining capacity has not kept pace with the rise in crude oil prices. "As a result of this prices of derivatives have gone up more than crude oil. So there is a lot of pressure on our margins," Mr Bharuka said.

Asian Paints (India) Ltd, a leading player in the decorative segments, also pointed to the fact that rising input costs could be a dampener during the current fiscal. "If key input prices escalate the way they did in 2003-04, then it would put pressure on operating margins," the company said in its annual report of 2003-04. During the previous fiscal, the material consumption to sales ratio increased from 53.8 per cent to 56.8 per cent.

Operating profit margins fell to 16.7 per cent from 17.9 per cent.

In addition to a surge in crude oil prices, freight costs have also added to higher costs, Mr Bharuka pointed out. "A raw material such as titanium di-oxide has high energy costs," he said.

Raw material costs, according to Mr Bharuka, accounts for 52 per cent of the total expenditure.

Bound by rising input costs, the paints industry may have to drive volume growth, according to equity analysts.