Decorative paints witnessing improved demand in upcountry markets: Berger

Berger Paints India, the country’s second-largest paint-maker, is eyeing improved performance in the decorative paints segment as demand rebounds. Growth is being driven by upcountry markets that are likely to witness demand, “even better than pre-Covid levels”, in June, and the trend is expected to continue into later months.

According to Abhijit Roy, MD and CEO, Berger Paints, upcountry and non-metro markets are witnessing a quick rebound with pent-up demand streaming in. Specific micro-markets and regions such as the agriculture belts in North and Central India — that include States such as Uttar Pradesh — and non-industry regions in Eastern India are doing well. In the South, there is good demand from Karnataka.

“Decorative paints, driven by repainting demand, is doing better, primarily in upcountry terrains. After a washout in April, there was good demand in May and it has improved further in June. If the current trend (in demand) continues, June 2020 will see us do better than last year and demand will be even higher than pre-Covid levels,” he told BusinessLine .

There is a high probability of demand extending all the way up to July-September periods this year, banking on agri-reforms and recovery in rural markets post a good monsoon, Roy added.

Decorative paints continue to be the major revenue contributor for Berger Paints. Market-share gains for the Kolkata-based company has been 4-5 per cent, say sources.

Other large paint companies in India include Asian Paints, Kansai Nerolac Paints and AkzoNobel.

Outlook

Significantly, protective paints, another segment in which Berger is the market leader, is expected to “do reasonably OK”, with government spending on infrastructure continuing and other orders from public sector utilities coming in.

However, automotive and general category paints — which account for 8 per cent of the company’s turnover — “continue to be in trouble”.

Although the recession in the auto sector continues, the company expects “demand for two-wheelers” (paints) to be at 70-80 per cent levels of last year’s. Tractors, too, are “doing well”. However, “commercial vehicles are in bad shape”.

“Although automotive paints do not contribute a very significant number in our total turnover, there will be some de-growth in the category, with commercial vehicles being in bad shape. This will have some drag in the overall numbers.”

Margins

According to Roy, the company’s Q4 (Jan to March 2020) results have seen gross margins improve by 300 basis points, following softening of raw material prices due to low crude oil prices. The raw materials in the paint industry are primarily crude derivatives.

However, dollar’s appreciation against the rupee and a “change in (product) mix” is being witnessed now, with upcountry markets selling more mass products. Sale of luxury paints continues to be slow.

Incidentally, a call on “product pricing” is likely to be taken in 2-3 months, “or earlier”, depending on how they move.

Berger also does not see much impact on raw material sourcing despite India’s ongoing tensions with China. Raw materials including titanium dioxide — the primary one for paint companies — are sourced from China. “We have alternative sources ready, if required. Yes, price-wise, China has an advantage over the others,” he added.

Capex

The company has not put on hold capex plans to the tune of ₹150-160 crore; this includes construction of the Jejuri (Pune) and Lucknow plants and other “regular maintenance capex” at existing facilities. Construction of the Lucknow unit is likely to begin in November or December, while “work on the Jejuri plant” will continue.

Berger will also be launching a host of home-care, hygiene and sanitisation offerings, including disinfectant sprays, between July and August. New products, including an “anti-bacterial and anti-virus paint” and hand sanitisers, have already been launched.