Published on 3/04/2019 11:56:08 AM | Source: ICICI Securities Ltd

Paints Sector - Healthy decorative paints volume growth By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Paint #Sector Report #ICICI Securities

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Healthy decorative paints volume growth 

Our recent channel checks indicate that double-digit volume growth in the decorative paint segment continued in Q4FY19 (13-15% YoY). In Q3FY19, paint companies had reported robust high double-digit volume growth (19-23% exAKZO) in this segment, which was aided by delayed festive season. For 9MFY19, Asian Paints (APNT), Berger Paints (BRGR) and Kansai Nerolac Paints (KNPL) recorded volume growth of 16-17% YoY. As in Q3FY19, APNT may continue to lead the industry in terms of decorative paint volume growth in Q4FY19 too, partially aided by increase in dealer incentives and rebates. We remain positive on the double-digit volume growth trend in the paint sector continuing in the medium term.

* Double-digit growth continues:

Our recent channel checks indicate that doubledigit decorative paint volume growth (13-15%) continued in Q4FY19. While volume growth in Q4FY19 is expected to trend lower than the Q3FY19/9MFY19, continued double-digit growth is healthy given high the base, both QoQ and YoY.

* Higher dealer incentives:

APNT’s decorative paint volume growth in Q3FY19 exceeded that of BRGR and KNPL for the first time in eight quarters. Our channel checks suggest APNT may continue to lead the industry in terms of decorative paint volume growth in Q4FY19 as well. Higher volume growth at APNT would be partially driven by increased dealer incentives and rebates as well as extension of incentive schemes to smaller dealers.

* High growth in low-value products:

As observed in the past few quarters, high growth in low-value products such as putty and distemper continued to aid volume growth for all paint companies in in Q4FY19 too. Industry participants have witnessed increasing use of putty in rural areas. Direct application of paints on cemented or plastered walls is now reducing as rural consumers become aware of the benefits of applying putty over these walls before painting. Moreover, increase in painter incentives for purchase of manufacturer’s putty along with paints as well as painter education are leading to higher sales of the low-value products.

* Strong growth in UP; J&K impacted:

The Kumbh Mela, held over a 49-day period in Q4FY19 in Prayagraj, Uttar Pradesh, had a strong positive impact in parts of the North in Jan’19 and Feb’19. On the other hand, cross-border tensions in Jammu & Kashmir impacted demand in the region. Among top paint companies, KNPL and Akzo Nobel India (AKZO) have a higher presence in Jammu & Kashmir.

* Further price hikes post general elections:

AKZO announced a price hike of 1.0- 1.5% w.e.f. 1-Feb’19. It was the only company to announce a price hike, which came after four price hikes in CY18 (aggregating 7.0-7.5%) by paint companies including AKZO. While crude oil prices have risen from the lows of US$45 / Rs3,200 per barrel in late-Dec’18 to US$60 / Rs4,000 recently, our channel checks suggest further price hikes may be announced only post general elections.


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