Berger Paints India Ltd, which has commenced commercial production at its facility at Sandila in Uttar Pradesh, expects its margins and profitability to improve in the fourth quarter of this fiscal and the subsequent quarters on the back of steady demand and lower inventory holding levels.
The Sandila plant, which is Berger’s largest manufacturing facility in India, set up at an estimated investment of over ₹1,000 crore, is expected to cater to the rising demand for its products and bring down cost of production. The plant has the capability to produce 15,000 KL/MT per month of water-based paint, 4,800 KL per month of solvent-based paint, 7,000 MT per month of putty, 6,000 MT per month of construction chemicals, 2,000 MT per month of resin and 6,000 MT per month of emulsion under one roof.
Commencement of commercial production in Sandila plant will lead to lower inventory holding and working capital improvement.
It may be noted that the company had witnessed a near six per cent decline in standalone net profit at ₹207 crore during the quarter ended December 31, 2022, due to build-up of high-cost inventory and poor demand due to extended monsoons in some markets. This impacted the gross margins and led to a decline in profitability during the third quarter.
“In terms of profitability, we declined this quarter mainly on account of four factors. The primary factor is the carrying stock, finished goods and raw material which we were carrying of the prior period which was at high cost. We anticipated a good festive season. Unfortunately rains continued for some time and stock offtake did not happen to the extent that we would have liked. The inventory lasted through October, November and December and we got no benefit out of the raw material price drop. So that benefit is going to come only in Q4 and Q1 of next year,” Abhijit Roy, MD & CEO, Berger Paints, said in the earnings call, the transcript of which is available on the BSE.
The installed capacity at the Sandila plant is 33,000 tonnes per month and the company’s existing capacity is about 62,000-63,000 tonnes so the total capacity would increase to 95,000 tonnes per month.
“This would suffice our requirement for the time being and therefore it will help us. We need not stock up and build up stock before the season,” he said.
According to a report by Nuvama Institutional Equities, commencement of commercial production at the Sandila plant from this February will lead to lower inventory holding and working capital improvement, aiding future margins and profitability.
Bright demand outlook
On the demand front, Roy said the outlook is bright. Mixed improvement is likely in the coming quarters supported by increased sale of exterior coating. Industrial sales outlook remains strong on the back of upturn in auto sector and government spending on infrastructure, he pointed out.