Informist, Wednesday, Mar 22, 2023
--Berger Paints MD: See gross margin normalise to 37% in Jan-Mar
--See FY24 gross margin at 38%
--Expect volume growth of 11-12% in FY24
--See dealer additions in FY23 at 6,500
--Expect to add 8,000 more dealers in FY24
--Expect raw material prices to remain benign
--Eyeing mkt shr gains, especially in Uttar Pradesh
--Will expand express painting to rural locations
--Expect marginal hit to growth after Grasim entry
--Impact of Grasim unlikely to be tremendous on co
By Avishek Rakshit
KOLKATA – Aided by benign raw material costs and declining high cost inventory, Berger Paints India Ltd expects to reclaim its usual gross margin of around 37% in the current quarter, up from 33.8% in the preceding three months. It also expects the margin to rise by another 100 basis points in the coming financial year, powered by a 11-12% volume growth.
“Titanium dioxide prices have decreased a little bit and other raw material prices are expected to remain stable,” the company’s Managing Director and Chief Executive Officer Abhijit Roy told Informist. “Thus we expect our gross margins to return to their normal levels this quarter and expand further next (financial) year.”
Berger Paints’ gross margins have been hit by high prices of key raw materials from April last year. The margins have been on a downward trajectory from 35.3% in the quarter ended June.
Moreover, the company had stocked up on inventory, anticipating high demand during the festival season, despite the then prevailing high costs. However, the demand came below expectations and this led to erosion of margins.
“But now, gross margins will stabilise and are expected to be around our normal levels in the coming year,” Roy said.
Another factor that is expected to boost gross margin this year is increased sales of exterior wall coatings and waterproofing as both have higher gross margin compared to paints.
VOLUME JUMP
It is not just margins that are likely to see an upswing in the coming months. India’s second-largest paint maker also expects volume growth to rise to 11-12% in the coming year, well above the 8-9% growth expected for the industry, Roy said.
The volume growth would be primarily led by its dealer network expansion, mainly in the western and southern India, and further expansion in the company’s ‘express painting’ services in small towns and semi-rural locations.
“We expect to add another 8,000 dealers (in the) next (financial) year to our base of 37,000,” Roy said. This compares to the estimated 6,500 new dealers added in the current financial year.
“While we are strong in the eastern and northern parts of the country, it is not so in western and southern India,” Roy said. “The focus would be to expand to these parts of the country.”
The second factor, growth in the company’s express painting service, is also expected to help.
“Express painting is very useful in markets where we have no presence as it not only helps us generate fresh leads but also prove to the dealer network that there is demand for our paints,” Roy said.
A part of the anticipated volume growth will also come from new products. In the December quarter, it had launched products in the exterior paints category offering 15-years warranty.
In the December quarter, Berger Paints’ sales volume grew by 6.6% on year which is around half as compared to the corresponding quarter of the last financial year when it registered 11.2% volume growth.
Roy said that a high base effect had resulted in the company posting the unimpressive volume growth rate.
“Also, extended monsoons and the festive season getting split between the second and third quarter impacted the volume growth if you compare it year-on-year,” he said. However, Roy said demand started recovering in January, and should lift volume growth in the current quarter.
The recovery is especially noticeable in the exterior segment, which staged a strong comeback in December in northern and eastern India after remaining muted in October and November.
GRASIM IMPACT
Amid the Aditya Birla Group investing heavily in its foray into paints with the Grasim brand, Berger Paints is gearing up to face extended competition from the latest entrant in the country’s paints industry.
“The growth may slow down by say 0.5-1% when Grasim enters the market, but it will not have a tremendous impact on our business,” Roy said. “The competition will increase more since Grasim is a serious player, but it will also help us as well.”
Roy reasoned that since the dealership network in the country is getting saturated, an otherwise exclusive paints dealer will try to sell other competing brands as well. Effectively, this trend will also help Berger have a stronger foray in west and south India.
“For east India, our market and dealership base is extremely strong and competing brands can have a hard time entering this region. But we will find it easier to proliferate in west and south India,” he said.
Besides, Berger is also looking at market share gains, especially in Uttar Pradesh and north India as entry of a large player will also help convert consumers from the unorganised segment to organised one.
“We currently have around 20% market share, and it will increase gradually,” Roy said.
Asked if Grasim and JSW Paints can bank on their existing cement network for growth, Roy said, “Cement and paints are completely different channels; while cement is mostly used for new construction, 85% of paints sales in the country are driven by repainting demand; so, I don’t think that any paint company can bank only on 15% of the market to grow their business.”
Today, shares of Berger Paints closed 0.1% lower at 594.25 rupees on the National Stock Exchange.
End
Edited by Maheswaran Parameswaran
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
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Informist, Wednesday, Mar 22, 2023
--Berger Paints MD: See gross margin normalise to 37% in Jan-Mar
--See FY24 gross margin at 38%
--Expect volume growth of 11-12% in FY24
--See dealer additions in FY23 at 6,500
--Expect to add 8,000 more dealers in FY24
--Expect raw material prices to remain benign
--Eyeing mkt shr gains, especially in Uttar Pradesh
--Will expand express painting to rural locations
--Expect marginal hit to growth after Grasim entry
--Impact of Grasim unlikely to be tremendous on co
By Avishek Rakshit
KOLKATA – Aided by benign raw material costs and declining high cost inventory, Berger Paints India Ltd expects to reclaim its usual gross margin of around 37% in the current quarter, up from 33.8% in the preceding three months. It also expects the margin to rise by another 100 basis points in the coming financial year, powered by a 11-12% volume growth.
“Titanium dioxide prices have decreased a little bit and other raw material prices are expected to remain stable,” the company’s Managing Director and Chief Executive Officer Abhijit Roy told Informist. “Thus we expect our gross margins to return to their normal levels this quarter and expand further next (financial) year.”
Berger Paints’ gross margins have been hit by high prices of key raw materials from April last year. The margins have been on a downward trajectory from 35.3% in the quarter ended June.
Moreover, the company had stocked up on inventory, anticipating high demand during the festival season, despite the then prevailing high costs. However, the demand came below expectations and this led to erosion of margins.
“But now, gross margins will stabilise and are expected to be around our normal levels in the coming year,” Roy said.
Another factor that is expected to boost gross margin this year is increased sales of exterior wall coatings and waterproofing as both have higher gross margin compared to paints.
VOLUME JUMP
It is not just margins that are likely to see an upswing in the coming months. India’s second-largest paint maker also expects volume growth to rise to 11-12% in the coming year, well above the 8-9% growth expected for the industry, Roy said.
The volume growth would be primarily led by its dealer network expansion, mainly in the western and southern India, and further expansion in the company’s ‘express painting’ services in small towns and semi-rural locations.
“We expect to add another 8,000 dealers (in the) next (financial) year to our base of 37,000,” Roy said. This compares to the estimated 6,500 new dealers added in the current financial year.
“While we are strong in the eastern and northern parts of the country, it is not so in western and southern India,” Roy said. “The focus would be to expand to these parts of the country.”
The second factor, growth in the company’s express painting service, is also expected to help.
“Express painting is very useful in markets where we have no presence as it not only helps us generate fresh leads but also prove to the dealer network that there is demand for our paints,” Roy said.
A part of the anticipated volume growth will also come from new products. In the December quarter, it had launched products in the exterior paints category offering 15-years warranty.
In the December quarter, Berger Paints’ sales volume grew by 6.6% on year which is around half as compared to the corresponding quarter of the last financial year when it registered 11.2% volume growth.
Roy said that a high base effect had resulted in the company posting the unimpressive volume growth rate.
“Also, extended monsoons and the festive season getting split between the second and third quarter impacted the volume growth if you compare it year-on-year,” he said. However, Roy said demand started recovering in January, and should lift volume growth in the current quarter.
The recovery is especially noticeable in the exterior segment, which staged a strong comeback in December in northern and eastern India after remaining muted in October and November.
GRASIM IMPACT
Amid the Aditya Birla Group investing heavily in its foray into paints with the Grasim brand, Berger Paints is gearing up to face extended competition from the latest entrant in the country’s paints industry.
“The growth may slow down by say 0.5-1% when Grasim enters the market, but it will not have a tremendous impact on our business,” Roy said. “The competition will increase more since Grasim is a serious player, but it will also help us as well.”
Roy reasoned that since the dealership network in the country is getting saturated, an otherwise exclusive paints dealer will try to sell other competing brands as well. Effectively, this trend will also help Berger have a stronger foray in west and south India.
“For east India, our market and dealership base is extremely strong and competing brands can have a hard time entering this region. But we will find it easier to proliferate in west and south India,” he said.
Besides, Berger is also looking at market share gains, especially in Uttar Pradesh and north India as entry of a large player will also help convert consumers from the unorganised segment to organised one.
“We currently have around 20% market share, and it will increase gradually,” Roy said.
Asked if Grasim and JSW Paints can bank on their existing cement network for growth, Roy said, “Cement and paints are completely different channels; while cement is mostly used for new construction, 85% of paints sales in the country are driven by repainting demand; so, I don’t think that any paint company can bank only on 15% of the market to grow their business.”
Today, shares of Berger Paints closed 0.1% lower at 594.25 rupees on the National Stock Exchange.
End
Edited by Maheswaran Parameswaran
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000 /+91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
