Kansai Nerolac Paints will raise prices by about two per cent across its decorative range on July 1. The company had hiked prices by about four per cent on May 1.
Asian Paints, the largest paint manufacturer in the country, too, confirmed that it was hiking rates from July and others are expected to follow suit. In general, paint makers raise prices together depending on input costs, given the intense competition.
“We had three raises last year totalling 12 per cent and by and large the cost impact was passed on to the end-user. This would be the second hike after May 1 this year,” said Mr H. M. Bharuka, Managing Director, Kansai Nerolac Paints.
However, Mr Bharuka felt that July would mark the peak in terms of the commodity cycle and inflation would begin to taper down thereafter.
“No one wants to disturb growth when the going is good, but we have no choice but to hike prices as crude, commodities and inflationary pressures have made it untenable, he said.
AUTO SOFTENING
A market leader in auto paints, Mr Bharuka says rising interest rates and the increased cost of spares and commodities as a whole have led to a softening of demand for the auto majors, which, in turn, would impact the paint makers. Against 25 per cent growth logged in the segment in the last two years, Nerolac expects no more than 10 per cent growth this year.
On the impact of oil on prices, he says it is mostly crude and crude-related. The direct correlation would be 30 per cent and the balance in titanium dioxide (TI 02) which, he said, had gone up substantially in the last one year from about $1700 to $3500 a tonne.
On the impact of the price rise, he said it would be largely felt in auto paints. White goods too have shown a drop in sales this year and so has furniture. Even infrastructure spends have not come about as expected. The industrial paints segment would not be left out, he cautioned.
For FY11, Nerolac clocked Rs 2,140 crore in revenues and netted Rs 206 crore. For the current year, Mr Bharuka said he would be happy to achieve 15 per cent against the guidance at 25 per cent.
On the price hike in the auto paints segment, he said unlike the decorative paints business it had to be customer-wise, where products vastly differed. The contract periods were varied and involved intense negotiations. On an average, Nerolac was able to raise rates by four per cent over the last five months.
REALTY DIP, NO IMPACT
Mr Bharuka said the dip in realty sales had had little impact on the decorative paints segment as it was largely focused on renovation and maintenance. Developer projects comprised about 15 per cent, he said, where price was invariably a major factor. Overall, the decorative segment would see a 15 per cent growth this year.
Fifty-five per cent of Nerolac's sales are from decorative paints and the industrial segment forms the rest, of which 75 per cent comprises auto paints.