X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 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

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Paints: Raw material concerns

Mar 13, 2003

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)FY97FY98FY99FY00FY01FY02
Asian Paints51.9%51.4%52.0%51.0%50.2%49.4%
Goodlass50.7%50.5%50.3%53.0%52.5%54.0%
Berger63.1%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 Announces Quarterly Results (4QFY19); Net Profit Down 1.9% (Quarterly Result Update)

May 10, 2019 | Updated on May 10, 2019

For the quarter ended March 2019, ASIAN PAINTS has posted a net profit of Rs 5 bn (down 1.9% YoY). Sales on the other hand came in at Rs 50 bn (up 11.7% YoY). Read on for a complete analysis of ASIAN PAINTS's quarterly results.

AKZO NOBEL Announces Quarterly Results (4QFY19); Net Profit Up 52.4% (Quarterly Result Update)

May 7, 2019 | Updated on May 7, 2019

For the quarter ended March 2019, AKZO NOBEL has posted a net profit of Rs 703 m (up 52.4% YoY). Sales on the other hand came in at Rs 7 bn (up 0.7% YoY). Read on for a complete analysis of AKZO NOBEL's quarterly results.

AKZO NOBEL 2017-18 Annual Report Analysis (Annual Result Update)

Apr 3, 2019 | Updated on Apr 3, 2019

Here's an analysis of the annual report of AKZO NOBEL for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of AKZO NOBEL. Also includes updates on the valuation of AKZO NOBEL.

SHALIMAR PAINTS 2017-18 Annual Report Analysis (Annual Result Update)

Apr 3, 2019 | Updated on Apr 3, 2019

Here's an analysis of the annual report of SHALIMAR PAINTS for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of SHALIMAR PAINTS. Also includes updates on the valuation of SHALIMAR PAINTS.

Asian Paints: A Quarter of Recovery (Quarterly Results Update - Detailed)

Nov 9, 2017

Asian Paints registers 21% YoY increase in profits during 2QFY18 on the back of profits realized through discontinued operations.

More Views on News

Most Popular

My Top 7 Stocks to Profit from Sensex 100,000(The 5 Minute Wrapup)

May 16, 2019

Tanushree Banerjee explains everything you need to know about the Rebirth of India and Sensex 100,000.

3 Stocks to Bet on to Become a 'Dividend Millionaire'(Profit Hunter)

May 14, 2019

As markets continue to rattle amid earning season, upcoming elections, volatile crude price and US China trade war, it's a great idea to add some stability to your portfolio by adding dividend stocks.

Indian Steel: The Perfect Multibagger Opportunity(Profit Hunter)

May 17, 2019

A structurally strong Indian Steel Industry will help India achieve 8%+ GDP growth in the coming years.

What Makes TVS Srichakra and CCL Products a Cut Above the Rest?(The 5 Minute Wrapup)

May 17, 2019

Despite the commodity nature of their businesses, these two stocks have rewarded shareholders well.

The Bitter Pill that Will Lay the Foundation for Sensex 100,000(The 5 Minute Wrapup)

May 14, 2019

These companies will help the Sensex more than double from current levels.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS