Latha Venkatraman

Mumbai, Feb. 3

ROBUST demand for paints has probably given some paint companies the confidence to pass on some of the input cost increases but margin pressures are expected to remain.

Asian Paints (India) Ltd, which recently increased prices by an average 4.5 per cent across all product categories, expects this move to help the company partially offset price hikes in raw materials. Prices of raw materials for the paint industry have been on an upturn tracking the trend in crude oil prices.

Paint companies, especially the small regional players, may not have the wherewithal to pass on input costs rises. The increase in input costs has impacted small-scale paint manufacturers whose margins have been affected severely, industry representatives said at a seminar on paint industry held here recently.

Goodlass Nerolac Paints Ltd has also been selective in raising prices and has not resorted to across the board hikes, an official of the company said. But he believes that going forward prices of some key inputs could soften.

"These price increases at Asian Paints should help partially offset input cost impacts for paint companies,'' said an official of Asian Paints.

Asian Paints had a substantial increase in its raw material cost in the nine-month period of the current fiscal. Input costs have risen to Rs 1,223.4 crore (Rs 990.9 crore). Goodlass Nerolac in its third quarter had a higher raw material cost of Rs 152.27 crore compared to Rs 97.23 crore in the year-ago period. What augurs well for the paint companies is that demand for paints continues to be strong in all segments and should be reflected well in the fourth quarter performance of these listed companies.

But ambiguity over how VAT would be introduced for the paint industry is an area of concern. "It is going to be a major issue if the Government goes ahead with it,'' said the Asian Paints official.

According to the industry, if the Central sales tax is not available for credit against VAT, the taxation impact will remain severe.

(This article was published in the Business Line print edition dated February 4, 2005)
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