Ongoing geopolitical tensions, particularly Russia’s invasion of Ukraine, and expected drop in crude prices will impact crude-related feedstock costs and could force the company to raise prices, says Abhijit Roy, Managing Director and CEO of Berger Paints India Ltd. .
Raw materials related to crude represent 35 to 40% of Berger’s expenses.
The company had made a price increase, in line with other players, from October to December – the full effect of which will have a visible impact on the fourth quarter figures.
“Commodity price volatility is expected at least in the first quarter of FY24 (April to June). This could extend further, we don’t know. But if crude volatility persists, it could be another round of price hikes, even at the expense of demand. We can’t predict how much of a hit this will cause at this time,” he said. Activity area.
According to a report by ICICI Securities, consumer consumption “remained weak” from January to February due to rising prices (up 22% since the start of the year), exam season and elections in certain markets. Commercial inventories also “largely returned to normal levels”, after dealers reduced their inventories (price increases after November).
Dealers, meanwhile, are anticipating further price increases in April as inflationary trends continue to persist. Prices for wood finishes have already been increased by 8% by paint companies, effective March 1.
Berger has already raised industrial coatings prices by 7-8% in the current quarter from January to March and indicated further increases – to the tune of another 7-8% – in the first quarter of FY23.
“Normally you raise prices at the end of a contract period. And given the inflationary trends in commodities, we would take another round of price increases in industrial coatings on March-April 22, with the full effect occurring in the April-June 2022 period,” Roy said.
“Urban demand grew faster than the interior in the third quarter and continues to hold at the moment. However, there will be a high base effect on the fourth quarter numbers,” he said .
In the hinterland areas, particularly in the northern belt, Berger experienced a slight slowdown, while in the west and south, demand remained relatively stable.
Push for Premium
Berger, the nation’s second-largest paint maker, expects its high-end, high-margin offerings in verticals spanning paint and adjacency like waterproofing solutions to drive growth and expanding margins.
Segments have been high on their agenda for a few years now.
Over the past four to six quarters, the Kolkata-based company has increased its advertising spend across all segments, which includes engaging brand ambassadors in the high-end paints and waterproofing segment.
Decorative paints make up approximately 80% of Berger’s portfolio.
According to Roy, the Centre’s infrastructure surge should translate into good growth in the adjacency and protective surfacing segment. And within the next two to three years, the new waterproofing and construction chemicals vertical is expected to be at par, in terms of percentage contribution to revenue, with the industry average.
Markets are anticipating a strong recovery in the waterproofing market in the first and second quarters of next fiscal year – a segment hard hit by lockdowns in fiscal years 21-22.
“Sealing and premium offerings are expected to gain traction over the next two to three years and reach around 7-8% of our revenue, in line with the big players. Currently, the contribution of the segment is below single digits,” added Roy.
March 06, 2022