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Volatility in raw material prices, primarily o crude derivatives, is expected to continue for paint companies for another three-six months before stability comes in, said Rajiv Rajgopal, Managing Director, Akzo Nobel India.
The company, makers of Dulux paints, has already initiated a 4.7 per cent price hike in decorative paints in January. Decorative segment accounts for nearly 65-70 per cent of its topline, while industrial and protective accounts for the remaining 30-35 per cent.
The cumulative hike for the paint-maker — the fourth largest in India after Asian Paints, Berger and Kansai Nerolac — will be in the 22.7 per cent range for nine months of FY22; against this the raw material price hike has been 25 per cent.
The country’s largest paint-maker, Asian Paints, hiked prices by 20–22 per cent in the nine months of FY22.
According to Rajgopal, most paint companies had anticipated crude prices to cool at $75-80 per barrel. However, it wasn’t the case. Crude prices are currently hovering around the $95-per barrel mark.
“The endeavour would be to maintain double-digit (EBITDA) margins. The price hike initiated in January is expected to see us through this quarter (Jan – Mar), at least,” he told BusinessLine in an interview.
Titanium dioxide, although stable at the moment, is a crude derivative, and the market is expecting a price rise primarily because of geo-political tensions. Monomer and solvent prices are also on the uptrend.
“The hope is high raw material prices should start cooling or stabilising around August. So another three to six months of such up and downs are expected,” Rajgopal added.
EBITDA margins stood at 14 per cent in Q3FY22; it improved 120-odd basis points over Q2FY22’s 12.8 per cent; but fell 345 basis points YoY (17.4 per cent in Q3 FY22).
Market share gains
Akzo Nobel India, which has seen market share gains in both premium and mass market offerings, is also reworking its distributor strategy as it eyes a larger pie in Tier-2 and smaller towns.
ICICI Securities, in a recent report, said, Akzo had lowest gross and EBITDA margin decline (YoY) as it was able to implement price hikes ahead of competition without any adverse price elasticity. A four-quarter moving revenue growth indicates that the paint-maker is likely gaining market shares in decorative paints. “We believe it has gained shares in mid-price and premium paints which has also led to better profitability,” the report said.
The company has begun a start-up challenge in India, called ‘Paint the Future’, where it will look at the probability of investing in start-ups; or partnering with them in future.
It is also looking at new launches in the premium segment; while re-launches are being mulled in some categories.
“The idea is to look at growth over the next three to five year period, as we put things in order. We would be upping the ante on adjacencies like waterproofing and wood colour segments – where some of our competitors are playing,” Rajgopal said.
Market sources say, adjacencies now account for 2- 3 per cent of the turnover for Akzo and could increase to high single digits in the next couple of years. On the other hand, larger players who are pushing their adjacency portfolio have seen atopline contribution of 5-8 per cent from it.
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