Paint maker Akzo Nobel India anticipates commodity price stabilisation — primarily crude driven derivatives — around the first quarter of next fiscal. With the quarter-on-quarter increase in commodity costs continuing, the company is mulling yet another round of price hike, mainly across decorative paints, in December.
While the quantum of hike is yet to be decided, it expects to see some volume growth too.
Incidentally, paint-makers have seen margin erosion in the second quarter of FY22 following which many have initiated a series of price hikes. In the latest, announced earlier this week, the country’s largest paint-maker, Asian Paints called for a nearly 5 per cent increase. The average increase in prices, across the industry, has been to the tune of 14-15 per cent, so far this fiscal.
Akzo Nobel India, the makers of ‘Dulux’ paints which is positioned in the mid to premium-end, has already initiated a near 18 per cent price hike that played out primarily across second quarter and into third quarter of this fiscal. The company took the lead in price hikes, unlike in the past when market leaders signalled increases and others followed.
Double-digit growth
According to Rajiv Rajgopal, Managing Director, Akzo Nobel India, despite the hike the company sustained double digit value and volume growth in the second quarter and protected margins – 10.1 per cent EBIT margins and gross margins at 40.2 per cent.
Although crude oil prices have begun showing very early signs of stabilisation, raw material volatility continues. With European nations opening up to harsher winters, the pressure on crude is expected. Secondly, different economies opened up at different times leading to supply chain disruptions. With nearly 25 per cent of raw materials for Akzo Nobel India being import-driven, there were delays, and a corresponding shoot-up in transport and logistics costs. The third variable is chip-shortages that affected tinting machine supplies.
“Of the three variables, raw material cost continues to be a worry. There is some stabilisation in crude price. It is extremely early days and we need to watch the space. There is another round of price hike in the offing that would take place say in December. When market leaders hike price, you get an indication that there is scope of absorption at the end-user level, We are working out the quantum,” he told BusinessLine .
“Raw material price volatility will continue into the first quarter of the next fiscal. So another two to three quarters before there is some stability,” Rajgopal added. On the chip shortage front, the company is expecting the situation to improve December onwards. .
Positive triggers
According to Rajgopal, there will be some resistance in the market over repeated price hikes. However, factors like improving demand with commercial properties and offices re-opening, increase in real estate / housing sales, and tourism picking-up (leading to restoration and renovation work in hotel) continue to be positive triggers.
In the coatings or non-decorative segment, including industrial paints, there are long-term contracts. So the effect of price hikes are expected to be visible about two quarters later. “There will be some moderation in volume. But one also has to see that cost hikes have gone through the roof and there is a still northward trend there,” he said adding that the company “continues to commit to double-digit EBITDA margins”.
“Pushing sales through changes in product mix and working on our advertising spends to gain market share are some of the ways we are looking at,” Rajgopal said. New launches are expected next year.