Kansai Nerolac paints tough FY13 on volatile crude, Re

HM Bharuka, managing director, Kansai Nerolac explains to CNBC-TV18 the year ahead is full of challenges due to crude derivatives failing to go down in line with crude prices, a depreciating and volatile rupee and a slowdown in key sectors across the economy.

Bharuka adds that the acquisition of a 68% stake in the Nepalese company Nepal Shalimar would boost the topline by about Rs 25 crore and the bottomline by about Rs 2 crore.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: What is the impact of the JV with a Nepalese company on your P&L?

A: It is a small Nepalese company called Nepal Shalimar with an 8% market share. We will also be buying 68% of this company and commence exports worth Rs 6 crore to Nepal. Our overall topline would go up by about Rs 25 crore and bottomline, by about Rs 2 crore.

Q: Crude prices have corrected quite a bit and in the last quarter your gross margins were eroded quite sharply because inflation in input costs. Has the fall in crude prices helped you in any manner? Did depreciation in the rupee take away an upside? Is there any improvement as compared to Q4?

A: The fall in crude prices has just started while the derivatives of crude are stable. Even though the crude prices have gone down, prices of raw material for paint industry still remain high. Secondly, the depreciation in the rupee is affecting us. Overall, we are still in the high inflation zone.

Q: What about revenues and profits? The company posted a 28-30% y-o-y rise in revenues. What do you expect in FY13?

A: It is difficult to say. But it is certain that a slowdown is round-the-corner as the past two months have not been very positive. Even though there is growth, the auto industry, the industrial sector and the decorative sector are all showing signs of stress.

So it looks like the current year is going to be very challenging. If inflation remains the way it is, both the topline and bottomline will be under pressure.

Q: Are there no advantages offered by the fall in global fuel or commodity prices?
 
A: Usually when commodity prices and the fuel prices go down, it helps companies like ours. But we are waiting for derivatives of crude to fall which will send basic prices down. But the depreciation is rupee is negating that effect. So, inflation is here to stay with for a while.

Q: With the slowdown in both industrial and decorative sectors, do you think pricing will remain subdued? There are reports that the industrial segment was improving on pricing. Do you think that is unlikely in the near-term?

A: That is unlikely as of now. The slowdown in growth is going to put lot of pressure on us and the monsoon remains uncertain. So far, we have been buoyed  by the rural economy. If the monsoon stays uncertain, we are in for a very challenging year ahead.

Q: What is your forecast of sales, growth in volume and margins?

A: The normal forecast is that industry will grow one-and-a-half times the GDP growth. This year, though the industry will post positive growth, it would be at a rate much lower than last year. It is difficult to discuss the bottom-line with volatility in the rupee and crude at peak levels. I do not expect costs to go up further and if growth rises, the year could be promising. But right the year seems very challenging.