X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Paints: Raw material concerns - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 13, 2003

    Paints: Raw material concerns

    One of the key concerns facing the Indian economy is the sharp spurt in crude prices globally. As against US$ 26 range last year, the Brent crude is currently hovering at around US$ 33 levels, a 27% rise. With the US persisting for an attack on Iraq, oil prices have shown extreme volatility off late, which is not a good sign for India Inc. The impact on the paint sector in this context, will be pronounced if crude prices continue to remain firm for a long while.

    One of the key raw materials used in the manufacture of paint is titanium dioxide (around 30% of raw material costs), which is a crude derivative. In light of the surge in crude prices, dioxide prices have also been strengthening in the global markets. Since Indian paint companies rely heavily on imports due to the lack of a quality conscious manufacturer in India, the impact could be adverse. Prices of titanium dioxide have already increased in the international market in 9mFY03 by 13%. Rutile dioxide prices was ruling around US$ 1,700 per tonne at the end of December 2002 compared to US$ 1,500 per tonne in April 2002. Asian Paints attributed the rise in price to the increased demand in the US, China and the South East Asian countries.

    High raw material costs…
    (% of sales) FY97 FY98 FY99 FY00 FY01 FY02
    Asian Paints 51.9% 51.4% 52.0% 51.0% 50.2% 49.4%
    Goodlass 50.7% 50.5% 50.3% 53.0% 52.5% 54.0%
    Berger 63.1% 62.1% 63.9% 63.7% 63.6% 62.7%

    We expect key raw material prices to increase from the current levels by atleast 5%-6%. Just to put things in perspective, data from Chemical Weekly for the month of March 2003 has some interesting numbers. Goodlass imported 40 tonnes titanium dioxide from Japan with an average price of US$ 1,782 per tonne. This means that the sharp spurt in crude prices has already forced titanium dioxide manufacturers globally to hike prices by 5%. In effect, the expansion in operating margins that one saw for paint majors in the first nine months of the current fiscal year is likely to be muted in the next two quarters.

    Though paint manufacturers generally tend to lock prices by entering into futures contract, we expect operating margins in FY04 to remain under pressure. Not only have input costs risen, but also paint manufacturers will not be able to pass on this rise to consumers, given the current economic scenario with agricultural sector faring poorly. In this context, average realisation will also be under check. We also expect the impact to be more pronounced on Berger and Goodlass.

    If one were to look at the price movements of the top three paint companies on the stock market, it is status quo. While Asian Paints has been languishing between Rs 325-Rs 340 levels since July 2002, Goodlass and Berger are also trading range bound. Until clarity emerges on the war front, one will not surprised if the trend continues in the near term also.

     

     

    Equitymaster requests your view! Post a comment on "Paints: Raw material concerns". Click here!

      
     

    More Views on News

    Asian Paints: Destocking Ahead of GST Impair Sales Volumes (Quarterly Results Update - Detailed)

    Aug 17, 2017

    Asian Paints registers 20.1% YoY decline in profits during 1QFY18 with low single-digit volume growth in the decorative paints segment.

    Asian Paints: Good Performance Across Segments (Quarterly Results Update - Detailed)

    May 18, 2017

    Asian Paints registers 10.4% YoY growth in profits during 4QFY17 with double-digit volume growth in the decorative segment.

    Asian Paints: Volumes Weighed by Notebandi (Quarterly Results Update - Detailed)

    Feb 17, 2017

    Asian Paints has reported a 2.6% YoY increase in the topline and a 0.6% YoY decline in the bottomline during the quarter.

    Asian Paints: Prolonged Monsoon Impacts Volume (Quarterly Results Update - Detailed)

    Oct 28, 2016

    Asian Paints has reported a 10.2% YoY increase in the topline while the bottomline has grown by 18% YoY

    Asian Paints: A Robust Performance (Quarterly Results Update - Detailed)

    Aug 3, 2016

    Asian Paints has reported a 9.1% YoY increase in the topline while the bottomline has grown by 17.9% YoY.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    COMPARE COMPANY

    MARKET STATS