Paint companies like Asian Paints and Kansai Nerolac, which occupy a majority share of the Rs 16,000 crore paints market in India, are looking for another round of price hike. The planned 3% hike, to be implemented in December, is reflective of a robust demand environment, and is to partially offset the sharp rise in the cost of its input materials. However, despite robust demand and a cumulative price hike of 8% in the last six months, paint prices still have not touched the peak of October 2008.
Asian Paints had raised prices by 4.2% in May 2010, followed by two other rounds of 2.6% and 1.2% hikes in July and August, respectively. Moreover, from December 1, there will be another hike of about 3% in the decorative paints segment. KBS Anand, president-decoratives, Asian Paints said, ?We are going to increase prices in the decoratives? segment by 3%. We have not yet compiled as to what would be absolute price per unit and will take some time.? However, the hike in the industrial segment could not be ascertained. On the demand side, the company indicated there is strong demand for decorative paints in the domestic market, with the volume growth higher in Tier I & II cities as against the metros.
Some of the key raw materials like the titanium dioxide, oils, and emulsions which are used in water-based paints, have seen inflationary trend of about 10-12%.
Also, companies say that the hike in prices is taking place with a lag effect. Hence, there is pressure on margins. For example, for the calendar year 2010, the hike in input cost was felt in February but the hike in retail prices took place in April, followed by August. Kansai Nerolac Paints, too, is planning to increase prices across its categories by an average 3%, starting first week of December. Mahesh Watane, general manager-corporate planning said, ?We have been taking into account the spiralling raw material prices. Although we also have taken price hikes in last quarter, it has been with a lag effect. Hence, there is tremendous pressure on margins. The price hike would be around 3%, which should be effective in the first week of December.?
The increase in price in August was mainly a result of the increase in excise duty that was factored in. He, however, reckons that in the current financial year, despite the rise in input costs, sales growth would be over 10-15%, on a year-on-year basis.