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Paints: Perturbing volume growth

Feb 5, 2001

After having reported significant growth in sales in the second quarter of the current year, volume growth in the third quarter for paint companies was subdued. Here, we analyse the third quarter performance of Asian Paints, Goodlass Nerolac, Berger Paints and Snowcem. The 3QFY01 performance of the paint companies presents a rather shabby outlook with a marginal growth in sales by 7%. But operating margins were more or less maintained at previous years levels (paint companies decreased paint prices in the festive season and resorted to a marginal increase in 3QFY01). Though titanium dioxide prices increased, edible oil prices declined during the year thus marginally offsetting the full impact of higher raw material prices at the operating level.

Sales slows down...
(Rs m) 3QFY00 3QFY01 change
Sales 6,062 6,486 7.0%
Operating Profit (EBDIT) 778 821 5.6%
Operating Profit Margin (%) 12.8% 12.7%  
Profit after Tax/(Loss) 450 461 2.4%
Net profit margin (%) 7.4% 7.1%  

Except for Goodlass Nerolac, almost all Indian paint companies, surprisingly, have shown a notable increase in operating margins for the third quarter ended 31st December 2000. This on the back of rising raw materials and competition is a creditable performance. The paint companies raised paint prices to offset higher raw material prices.

Operating margins
Company 3QFY00 3QFY01
Asian Paints 14.6% 15.2%
Goodlass Nerolac 10.9% 7.7%
Berger Paints 9.6% 10.7%
Snowcem 15.4% 16.2%

However, the perturbing factor is that sales growth was very marginal compared to the respective quarter of the previous year. The advancement of the festive season in the second quarter of the current year i.e. October 2000, facilitated paint companies in posting better volume growth in 2QFY01.

Average rainfall, natural calamities in two states, lower agriculture output and slowdown in economy further subdued paint demand. With construction companies keeping on hold their construction projects as a protest against price hike by cement companies, paint demand would slow down further in 4QFY01. Besides, automobile companies are also not expected to report any notable growth in sales in 4QFY01 as major companies have postponed their new launches in light of new auto policy, to be announced by the government in March 2001.

However, construction activity is expected to resume in Gujarat in the fourth quarter, which could potentially increase paint demand.

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