Decorative paints likely to get costlier in December

Paint makers are planning a 1.5-3 per cent price hike in decorative paints from December to maintain margin amid soaring raw material costs.

This will be their third price hike in FY19 — they had hiked prices by 2-3 per cent in May and October.

According to market sources, Berger Paints, Asian Paints and Nerolac are mulling a price revision in the decorative segment, beginning December.

Berger Paints confirmed the price hike. Sources at Asian Paints — the largest paint maker in the country — said it is exploring possibilities. Kansai Nerolac did not respond to queries, while Akzo Nobel is “in silent period”.

“A price hike in the decorative paints category is likely, especially considering the rise in raw material cost and margin erosions that paint majors have seen in the July-September quarter,” Abneesh Ray, Senior Vice-President, Institutional Equities, Edelweiss Securities, told BusinessLine . “A hike post the festival season also makes sense since these companies would not want channel disruption during this time.”

Rising costs

Rising input cost because of rupee depreciation and northward movement of crude prices have already had a impact on the bottomline of paint companies. Titanium dioxide — a key raw material — has become 18-30 per cent costlier in the past six months.

This apart, the majority of raw materials used by paint companies are crude oil derivatives, such as monomers and pthalic anhydride. Their prices, too, have surged, putting the margins further under pressure.

Berger Paints saw its operating profit margin (OPM is a measure of the company’s profitability after paying for variable costs like raw material) decline to 14.03 per cent in Q2 FY19 from 17.02 per cent in the year-ago-period. Its net profit margin (NPM) during this period fell to 7.68 per cent, against 9.53 per cent in the corresponding quarter last fiscal.

In the case of Kansai Nerolac, OPM declined to 16.24 per cent (20.27 per cent) while NPM fell to 9.48 per cent (12.45 per cent).

Asian Paints saw a relatively lesser drop in margins with OPM declining to 20.24 (21.62) per cent and NPM to 12.30 (13.14) per cent.

“There is still some pressure on paint companies with relation to margins. Post a hike in December, we (Berger) will look to maintain margins,” said Abhijit Roy, MD and CEO of Berger Paints. Roy is also the President of the Indian Paints Association, an umbrella organisation of paint makers.

Industrial paints will also see a price hike of 3-5 per cent, but it may come around December or January next year. Sources say a 6 per cent price hike in industrial paints was initiated in October.

According to Roy, industrial paint prices are negotiated contracts. “When the contracts come up for negotiation, say around January, the price hikes will be initiated,” he said.

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