Berger Paints has slashed prices of wall coatings and enamel paints to pass on the benefits of lower raw materials costs to the customers, says its MD & CEO Abhijit Roy. In an interview with businessline, Roy says although gross margin will be impacted because of the price cuts, the company’s EBITDA margin in the fourth quarter of this fiscal is expected to be similar to that of the third quarter. Excerpts:
During the third quarter this fiscal, Berger Paints’ EBITDA registered an increase of 37.3 per cent year-on-year. What were the factors that contributed to this growth?
Mainly, two reasons. One was a softening of raw material prices compared to last financial year. The second is in terms of product mix, compared to last year in the same period, the mix was better. During this quarter growth of low profit items was lower compared to corresponding period last year. And, compared to that emulsions growth was on the higher side. These wall paints or emulsions tend to have higher margins. The low-profit items were sold less and high-profit items sold more. Therefore, there was a margin improvement. We are doing well, and we are growing much faster than the rest of the companies in the industry. We are the fastest in sales growth and operating profit growth this quarter, highest growth rate amongst all companies which have declared their results so far.
What is the raw material costs outlook going forward?
Outlook is stable. The costs of the raw material are likely to remain at similar levels as is today. However, there has been a drop in selling prices. All of the paint companies have cut prices to pass it on to consumers. Therefore, the gross margin is going to come down a little bit. Gross margins have been or will be impacted because of the price cuts.
When did Berger slash prices? In which segments did it cut the prices?
The price cuts happened in January. It was in wall coating and enamels-- both in the premium segments. The impact for us would be about 2.7 per cent on sales. So that will have some impacts on gross margin. But since the raw material prices have fallen further and we would not have the World Cup (Men’s cricket world cup 2023) spending what we did in the third quarter, our EBITDA margin in the fourth quarter will be similar to what we had in Q3. In the third quarter, our EBITDA margin stood at over 16 per cent.
During the post-earnings analysts and investors meet, you said there was a lot of competition on prices in the wall putty segment...
On putty, there is a lot of competition on price. And, therefore we did not fight that price war. Hence the growth rates were lower than normal in putty. We did not want to fight and join the battle. In this category, our strategy will be to maintain decent growth but don’t go overboard, try and maintain the market share that we have.
The market launch of Birla Opus, the brand name of Grasim Industries’ paints business, is scheduled for Q4FY24.The Aditya Birla Group flagship company endeavours to become a “profitable No. 2 player” in the decorative paints industry in the coming years. Currently, Berger Paints is the second largest paint company in India. How do you see this development?
There is no timeframe (for Grasim to become No. 2 player), there is no logic. That might be an aspiration. Akzo Nobel had said it wanted to be No. 1. They are No. 4 now. So it is not something which makes any sense unless things are there on the ground and we get to know what they are up to. We are not going to sit here and watch. Our Rs 12,000 crore (revenue) is probably going to become Rs 20,000 crore. So they (Grasim) will have to go up to Rs 20,000 crore in the next five years. Now, from zero can they grow up to Rs 20,000 crore? Is that feasible? Is it possible? That is the question that they will have to answer. I don’t think we can answer from our side.