Paints: Testing times - Views on News from Equitymaster

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

  • MyStocks


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

Paints: Testing times

Sep 17, 2001

Last week’s terrorist attack on the US has created a lot of discussion on its likely impact on various sectors and their profitability. Here we take a closer look at the impact on the Indian paint industry and what else is on the anvil. One of the key factors that could have a material impact on the paint industry is the possible rise in crude prices. If the US decides to attack the Middle East, then the possibility of crude prices touching historically high levels cannot be ruled out. Though the Organisation of Petroleum Exporting Countries (OPEC) has promised of stable crude output, one is not sure as to what extent they can control crude prices in case of a war. The recent speech by President George Bush clearly indicates that US wants to take revenge for the horrendous WTC tragedy. However, the attack might not happen immediately in light of ongoing FBI investigations.

Since crude is one of the key input in manufacturing titanium dioxide, a significant rise in crude prices might result in higher raw material costs. Since Indian paint companies primarily source titanium from the international market, the sharp fall in rupee might further add to the woes. At the beginning of the year, paint companies were of the view that raw material prices as a percentage of sales would be lower than FY01. But given the current uncertain environment, this might not be the case going forward.

Falling production…
(tonnes) Mar-01 Apr-01 May-01 Jun-01
Paints (IPP) 39,884 35,726 38,236 38,803
% increase   -10.4% 7.0% 1.5%
Paints (SSI) 20,414 20,457 20,414 20,414
% increase   0.2% -0.2% 0.0%
Phthalic Anhydride 11,763 15,768 16,623 13,248
% increase   34.0% 5.4% -20.3%
Source: CMIE

Coming to the demand scenario, paint demand remained subdued in the first quarter of the current financial year. Barring Asian Paints, none of the other major paint companies showed encouraging topline growth. If one were to look at the production trend of paints and other paint related chemicals, compared to a 7% growth in production in May 2001, production has increased by just 1.5% in June 2001. Similarly, the small-scale manufacturers (SSI) have also scaled down production in recent months.

Given the subdued demand scenario, if raw material prices were to harden, the impact on bottomline is expected to be higher for smaller paint companies. Also, if crude prices increase, inflation, which is currently hovering around 5% levels, will be tested. Consequently, demand might further decelerate.

But there is a silver lining. The Centre for Monitoring Indian Economy (CMIE) expects agricultural production to increase by 9% compared to a 4.6% fall last year. Food grain and non-food grain production are also expected to go up by 8.2% and 10.3% in the current financial year as opposed to a fall of 6.2% and 2.2% respectively last year. Though southern states have had deficient rainfall, India as a whole has received a normal rainfall. With festive season nearing, one might see an increase in paint demand.

Trend in production…
(% change) FY99 FY00 FY01 FY02E
Agri production 8.2% -1.5% -4.6% 9.0%
Foodgrains 6.1% 2.3% -6.2% 8.2%
Non-foodgrains 11.1% -6.8% -2.2% 10.3%
Source: CMIE

While speaking with a paint company, the general view is that demand is subdued amidst marginal increase in the western region. But one will get a clear trend only from the second and third quarter results, everything else remaining constant.

Equitymaster requests your view! Post a comment on "Paints: Testing times". Click here!


More Views on News

Berger Paints Stock Falls Over 4% as Company Reports Profits Below Estimates (Views On News)

May 27, 2021

Berger Paints net profit more than doubled in the fourth quarter but ended up dropping 4% over muted investor sentiments.

Asian Paints Q4 Profit Zooms 81% Led by Demand Recovery (Views On News)

May 13, 2021

Aided by a low base, Asian Paints' topline and decorative volume growth topped estimates.

AKZO NOBEL Announces Quarterly Results (3QFY21); Net Profit Up 13.5% (Quarterly Result Update)

Feb 11, 2021 | Updated on Feb 11, 2021

For the quarter ended December 2020, AKZO NOBEL has posted a net profit of Rs 874 m (up 13.5% YoY). Sales on the other hand came in at Rs 8 bn (up 6.5% YoY). Read on for a complete analysis of AKZO NOBEL's quarterly results.

BERGER PAINTS Announces Quarterly Results (3QFY21); Net Profit Up 47.4% (Quarterly Result Update)

Feb 11, 2021 | Updated on Feb 11, 2021

For the quarter ended December 2020, BERGER PAINTS has posted a net profit of Rs 3 bn (up 47.4% YoY). Sales on the other hand came in at Rs 21 bn (up 24.9% YoY). Read on for a complete analysis of BERGER PAINTS's quarterly results.

KANSAI NEROLAC 2019-20 Annual Report Analysis (Annual Result Update)

Dec 29, 2020 | Updated on Dec 29, 2020

Here's an analysis of the annual report of KANSAI NEROLAC for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of KANSAI NEROLAC. Also includes updates on the valuation of KANSAI NEROLAC.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms