In Q4, Berger Paints trends should be similar to Q3

Synopsis

Abhijit Roy says: “We have always had big competition within the industry. There are major players there already both domestic and international and we have been fighting. So I do not see anything majorly changing, of course, there is a very big player coming in in March-April and that might shift a little bit in terms of the growth rates but it is not going to be a very tangible effect on the overall revenue or profit growth.”

Berger Paints Q2 will be same as Q1; Q3 will see double-digit growth: Abhijit RoyETMarkets.com
“Operating margins hould be in that range of 15-17% not only for Q4 but also going forward.”

Abhijit Roy, MD & CEO, Berger Paints, says “while the uptick has been more on the value side, there has been some uptick during November, December, January more towards the luxury category. Typically these months in the paint industry the luxury category tends to do well. This year it has been slightly muted in that direction but the economy category did slightly better than expected.”

Your Q3 has seen volume growth of high single digits. What are the early demand trends shaping up for Q4? Does it seem like you will get back to double digit volume growth?

Abhijit Roy: In Q3, decorative had a double digit volume growth. Overall, we had about 9.1% growth. The Q4 early shows a similar trend as was there in Q3. January was a bit muted, but February might be better and for March we have to wait. So the trends as of now are similar to what was there in Q3.


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But having said that, what aided the move also was the fact that there were softer raw material prices in the quarter. Are you expecting operating margins then to remain in that range of 15% to 17% considering price cuts, ad spends etc.?

Abhijit Roy: Yes, I know that is the expectation and as we have indicated it was on the higher side this quarter. It should be in that range of 15% to 17% not only for that quarter four but also going forward.

Which segments of your business are doing well, the premium ones, the mid pricing ones, or the slightly on the value side?

Abhijit Roy: Mostly on the value side. There has been some uptick during November, December, January more towards the luxury category. Typically these months in the paint industry the luxury category tends to do well. This year it has been slightly muted on that direction but the economy category did slightly better than expected.

What is the outlook in terms of competitive intensity? Is that a bit of a worry in terms of retaining market share, overall margins and do you think that will change the industry share or cost structures, would you maybe prioritise your margins over market share in this scenario?

Abhijit Roy: So it is still early the competition has not begun as yet so in the true sense we have always had big competition within the industry. There are major players there already both domestic and international and we have been fighting. So I do not see anything majorly changing, of course, there is a very big player coming in in March-April and that might shift a little bit in terms of the growth rates but it is not going to be a very tangible effect on the overall revenue or profit growth.

However, as we have said in the analyst meet yesterday also we would prefer to prioritise market shares and remain in the 15% to 17% operating margin range. We do not want to go overboard on that and we do not want to increase or improve our margins significantly beyond 17 but we will remain in this range and try and prioritise our market share.

The cycle of the sector is that it is a big opportunity with 15-17% margin on the higher side and hence you are seeing more players in the building material side also looking at this space. Going forward, what would decide the top two notch – is it technology, is it pricing, is it distribution that will determine which company would gain market share and profitability?

Abhijit Roy: The same logic holds true for the last 20 years. Whatever works will continue to work and that is basically distribution and branding. Technology is not a very big driver in this industry and manufacturing. On the consumer side, there might be some developments and digitalisation will be far more stronger there but otherwise basically distribution and branding and then the influence of your management which includes dealers, architects, builders, contractors, painters. These are the fundamentals of the paint trade which are not going to change much.

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Harry Byrne

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