IGI Logo

Highlights:

(1) Most dealers indicated that volume growth is likely to be in low teens during Q3FY22. While there was healthy growth in Oct-Nov’21, the month of Dec’21 saw deceleration.

(2) While Apr-June quarter is key season for waterproofing, most dealers indicated that there was strong demand in Oct-Dec’21 too as consumer habits are changing - (1) many consumers are waterproofing their houses while painting and (2) the paint companies have also increased the marketing investments/efforts in waterproofing,

(3) passenger vehicle production declined (19.5%) and two wheeler production declined (23%) in Oct-Nov’21, YoY. The index of Consumer durable production also declined 6.1% in Oct’21,

(4) There were price hikes in two tranches in Q3FY22. We note paint companies have effected cumulative price hike of 22-25% YoY,

(5) there is steep inflation of 26-145% across major input prices. There is sharp increase in freight and transportation cost too. Must see figures are 1-4.

Top picks - Akzo Nobel (only paint stock in our coverage rated ADD; though, we reckon that short-term remains cloudy, may be a tad underwhelming) - preferred turnaround pick for 2022 and beyond. We have HOLD rating on Asian Paints, Kansai Nerolac and Indigo Paints, and Reduce rating on Berger Paints.

* Healthy offtake in waterproofing segment continues: The dealers indicated that apart from paints, waterproofing business also continued to perform well in spite of non-season. Rising trend of consumers waterproofing their houses while painting and increased marketing investments in waterproofing by the paint companies are the likely reasons for higher demand.

* Decline in automotive production: Passenger car production reported decline of 19.5% in Oct-Nov’21 YoY. The production of two wheelers also declined 23% in OctNov’21 YoY. The automotive production (& automotive paints) is likely to revive post resolution of the chip issue. Price hikes by auto companies are likely to revive second-hand car market and result in higher demand for auto-refinish paints.

* Decline in index of production of Consumer durables: The production of consumer durables (IIP) has also declined YoY post Aug’21. The production of consumer durables was down 6.1% in Oct’21.

* Price hikes in range of 22-25%: Most paint companies have effected cumulative price hike of 22-25% now. During the quarter, prices were raised in two tranches – 8- 12% on 12th Nov’21 and 4-6% in Dec’21 first week.

* Steep inflation in raw material prices: The prices of all key raw materials such as TiO2, crude oil (solvents), packaging materials are inching upwards sharply. Apart from raw materials, we also note there is steep inflation in freight and transportation cost due to higher diesel prices. However, we note there is some reduction in select input prices in Dec’21, MoM.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer