PremiumIn a bid to protect margins, paint makers battling cost inflation, continue to pass on the burden of increased costs to consumers. A recent dealers channel check by ICICI Securities Ltd showed that most paint companies have raised selling prices by 4-5% during the June quarter. Paint companies took price hikes in May, June, July and also plan to increase prices in August. This is expected to translate into higher net realisations for listed paint companies.
"We note the realization led growth will be significantly higher in Q1FY22 considering price hikes of ~3%, reduction in trade schemes. Most paint companies had 5-8% trade schemes in H1FY21 due to lower raw material prices and higher revenue contribution from premium products," said the ICICI report dated 10 July.
Analysts say, unlike earlier where prices were raised in one go, paint companies are taking price increases in a phased manner, which has allowed better absorption of hikes without much impact on volumes. Prices have been raised for products in both decorative and industrial segments.
Prices of key input material titanium dioxide and crude-based monomers continue to rise. Analysts say, on a year-on-year basis, commodity inflation in Q1FY22 was 14-171% across commodities.
As for demand, volumes are expected to be lower on a sequential basis, though a favourable base of last year could make the year-on-year number look good.
"Demand at slower pace as compared to first wave. Painter availability is at 40-50% and economy and premium are preferred to luxury products. Unlike last year when upsurge was led by tier 2/3 cities, metros have seen sharper rebound this time. Our channel checks suggest paint demand growth of 40-45% and superior growth by Asian Paints over peers," analysts at Prabhudas Lilladher said in a recent report.
Meanwhile, investors sentiment towards paint stocks has remained buoyant, driven by the expectations that price hikes would shield operating margins.
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