Kansai Nerolac to add 5th plant by Dec

Thu, 05 Nov 2009 06:17:48 GMT

By Tamajit Pain and Aniruddha Basu

MUMBAI - Kansai Nerolac Paints Ltd will raise capacity by 15 percent by December by adding a plant, but margins may not be sustainable at current levels in the rest of the fiscal as input costs climb, a top official said.

Kansai Nerolac gets 55 percent of its revenues from decoratives and the new plant is to cater to surging demand in this segment, managing director H.M. Bharuka told Reuters in an interview late on Wednesday.

Kansai is the market leader in the industrial segment with a market share of 42 percent.

Kansai, India's second largest paints maker, has earmarked capital expenditure of 1 billion rupees in 2009/10, mainly for building the new decorative plant and for capacity expansion in existing plants, he said.

"We are spending more in decoratives as we are putting up a new facility near Bangalore, Karnataka, which will go live by December," he said.

"And as far as industrial (segment) is concerned, brownfield expansion is underway in existing facilities."

The firm's current capacity is about 175,000 tonnes an annum and the new plant will raise capacity by 15 percent annually.

Kansai Nerolac's sales rose 15.6 percent in the first two quarters and expects to maintain revenues at current levels in the second half, mainly due to strong urban demand, he said.

In the July-September quarter, its net profits rose 96 percent to 529.9 million rupees on lower input costs and better realisations.

"In India more than 50 percent (of demand) comes from service sectors, which are urban based, and another 20-25 percent from manufacturing sector. So if you combine these, majority of demand is from urban markets".

"Typically in case of developing countries we see normally that 1.5 to 2 times the growth of GDP would be the growth of paints industry. Housing demand is growing, from that perspective decorative paints is primed to do well," he said.

The industrial paints segment is expected to do well as auto and industrial sectors are doing well, Bharuka said.

The official said the firm is also increasing its ad-spend in FY10 by 50 million to 100 million rupees to tap the booming decoratives market. It had spent 500 million rupees on advertisement and marketing spend in FY09.

However, profit margins may not be sustainable at current levels in the remainder of the fiscal as input costs, particularly of crude, were on the rise.

"In the next half input costs will be more than first half. The first half had a very good reduction compared to the last year. So raw material costs in the second half will be more than first half," Bharuka said.

Crude prices were hovering around $50 a barrel in the start of April, have risen about 60 percent to $80 as of now. The paints industry uses some by-products of crude as input.

The firm was not planning a price increase in the near term as it did not want to disturb the demand equilibrium, he said.

"We will wait and watch. Whatever (cost) we can bear we will bear and whatever we can't, we will take a call."

(Editing by Prem Udayabhanu)





(Reuters)

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