Betting on pent-up demand, Berger Paints speeds up expansion plans

As pent-up demand is pushing up volumes, Berger Paints, country’s second largest paints maker in the decorative segment, , is aiming to accelerate and expand its manufacturing capacity.

Berger is in the process of setting up a Rs 700-crore plant in Uttar Pradesh and the commissioning of the plant is now being brought forward on account of high capacity utilization at its existing facilities.

Berger Paints managing director and chief executive officer, Abhijit Roy, said, “Originally, we had planned to commission the plant in April of next year, but we will now try and start it in December 2021.”

Roy explained that the kind of demand that the company was seeing was not anticipated. “The volume growth in Q3 was almost 32 per cent; obviously our factories are getting a bit stretched and we are operating at very high levels of efficiency at this stage. Therefore, we thought of getting quickly into the manufacturing and expansion phase,” he explained.

The idea is to cover for the growth expected next year, which Roy thinks will be robust. “Next year, are expecting a solid, robust growth again,” he said.

The third quarter for Berger has been one of its best quarterly performances. Revenues were up 25 per cent, on a year-on-year (YoY) basis; EBITDA saw a growth of 40 per cent and net profit 51 per cent.

Roy explained that typically April and October are the strongest months for paint companies. But last April was a wash-out due to the lockdown following the Covid-19 pandemic.

“The pent-up demand that was there in Q1 started coming back in Q2 and then more strongly in Q3,” he said.

Rural was a major contributor to the increase in demand.

Also, migration from the unorganized sector to organized, boosted sales.

But Roy believed that Q4 would also be strong. “Growth rate in Q4 will be higher than what we registered in Q3; Q1 (next fiscal) will be higher than Q4 (this fiscal),” he said.

Berger is also setting up a plant in West Bengal, which would be its third in the state.

A 20-acre plot in Panagarh has been allocated at an industrial park meant for building materials. The company will now be applying for requisite permissions after which construction will start and the plant will be operational a year from then, which would be 2022-23.

In the last few years, the paints industry has seen new entrants with deep pockets like JSW and more recently, Grasim.

Roy, however, said that the company would focus on consumers and customers. “Ultimately, if we are able to service them at the right price point, then we would win the battle,” he said.

He also pointed out that players with deep pockets had entered the segment in the past, too, but it had not impacted Berger’s market share.

On price hike, Roy said, that raw materials had seen an increase in prices and Berger increased prices in the industrial segment prices by 5-9 per cent. “We asked for a price increase and got in many cases. For auto, we are in negotiations,” said Roy.

For the decorative segment, however, the company would increase prices only if raw material prices increased further.

CATCHING UP WITH DEMAND

Q3 saw a volume growth of almost 32 per cent; capacity utilization at factories at high-80s levels

Speeding up new plant in Uttar Pradesh, expected to be commissioned in December 2021

Setting up third plant in West Bengal