Inventory Rose As Dealers Tanked Up For Festive Demand, Says Berger Paints’ Abhijit Roy
As demand from automakers fell in a slowing economy, paintmakers defied falling consumption on higher sales of decorative paints. But that came as companies aggressively pushed volumes by offering incentives to dealers, causing the inventory to pile up.
The inventory levels have increased to 30-40 days from 7 to 15 days, Abhijit Roy, managing director and chief executive officer at Berger Paint Ltd. told BloombergQuint in an interview. But it’s largely because of rains in August, when dealers stock up anticipating a spike in demand in September with the onset of the festive season, he said. “They are also confident of being able to liquidate inventory sufficiently.”
Asian Paints Ltd., the market leader, reported a 16-17 percent year-on-year growth in domestic decorative paints volumes in the quarter ended June, while Berger Paints Ltd. and Kansai Nerolac Ltd.’s sales jumped 16 percent and 15 percent, according to their filings. That helped earnings beat estimates even as number of Nifty 50 constituents missing forecasts jumped to its highest in at least three years amid an economic slowdown.
Shares of Kansai Nerolac, Asian Paints and Berger Paints jumped 5 to 21 percent in the last six months compared with a 1.44 percent increase in Nifty 50. The three socks surged after the first quarter earnings.
CLSA, in a note after Asian Paints first-quarter earnings, highlighted that volume growth was partly driven by “aggressive channel push through innovative schemes”.
Roy admitted paint companies have been offering heavy discounts heavy to dealers to push products. “It is a competitive industry and money will be spent to shore up market share.”
According to ICICI Securities, the incentives in the form of 3-4 percent additional discounts continued in July and August.
The cushion for such aggressive marketing was provided by low raw material costs, which led to profit growth of companies having a bigger exposure to decorative paints. That helped them cut prices and incentivise dealers.
While demand from makers of cars, two-wheelers and trucks has fallen as the auto industry battles the worst slowdown in a decade, Berger Paints will continue to focus on the auto sector. “If we have managed to grow in tough times, we should not have a problem when things start to improve.”
The industry has never witnessed a slowdown in recent times and as a category is more resilient, Roy, also former president of the Indian Paints Association, said. With a growth rate of 1.5-2 times that of the pace of GDP expansion, the paints industry will be worth Rs 68,000- 70,000 crore in the next three years, he said.