Paint Companies Bracing For Price Hike
Paint dealers are expecting a price hikes in January-February’20 especially in enamels. Depending on price hikes news-flows, the dealers are expected to increase inventory prior to price hike. Typically, the paint industry passes on the burden of increased input costs to customers. The price of key raw material, titanium dioxide (TiO2), has increased by around 25% in the December quarter, showed Bloomberg data. Compared to a year-ago, TiO2 prices are flat, but analysts caution of upward pressure, going ahead. Crude derivatives are estimated to form around 60% of the cost of goods sold for paint companies. TiO2 pigment forms around 25% of the total content of paint. Likewise, prices are reduced when raw material cost eases. Also, since most of these chemicals are imported, the rupee depreciation is a key monitorable. Around 70% of India’s domestic demand for TiO2 is met through import deliveries and China is the leading exporter of TiO2 to India. The imports from China for Asian Paints Ltd and Berger Paints India Ltd vary between 8% and 10% of total raw material cost. In the September quarter, volume recovery was led by economy products such as enamels and putty, driven by demand from smaller towns. Analysts expect this trend to continue in the December quarter as well. Margin expansion was aided by soft raw material costs and rationalization of other expenses. Analysts do not expect paint makers to repeat their stellar margin performance in the December quarter. Cost pinch along with reversal in some variable cost components would weigh on operating margins.