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Asian Paints, Berger Paints hike prices in highest-ever increase

Asian Paints, which has already taken a 7.5 percent cumulative price increase in the last six months, plans to further hike prices by 7-10 percent, while Berger Paints, too, has taken a high single digit price increase, said brokerages.

October 27, 2021 / 12:34 PM IST
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Paint companies Asian Paints and Berger Paints have taken high-single-digit price increases across their portfolio in a move to offset the rising inputs costs, brokerages reported on Wednesday. This is the sharpest price increase ever taken by these companies.

According to Kotak Institutional Equities, Asian Paints, the market leader in the decorative paints segment, has hiked the prices by 7-10 percent, effective from November 12. While Berger Paints also has hiked

prices by high-single digits, said Edelweiss adding that other companies might follow suit soon.

“Asian Paints has taken a price increase of 10 percent across product portfolio except for enamels (6-7 percent price hike); blended price increase at the portfolio level is 8-9 percent,” said a note from Kotak Institutional Equities.

Another brokerage Nomura, too, reported the development. “Channel checks indicate Asian Paints announced aggressive 9 percent price hike

(confirmed by the company) across portfolios and key brands effective November 12 (post-Diwali),” it said.

This increase is higher than its cumulative price increases over the past 6 months (7.5 percent over 1H22) and the highest price hike in one go since 2008, said the brokerage.

Margins dented

Paint companies have been battling high inputs costs on account of rising inflation for more than a year now, which has impacted their margins.

Amit Syngle, CEO and managing director, Asian Paints, while addressing investors after reporting the second-quarter results earlier this month had said that steep inflation seen in raw material prices, since the beginning of this calendar year, has been phenomenal and has impacted gross margins across all businesses in the quarter.

In the second quarter of the financial year 2022, Asian Paints had a 34 percent volume growth on a base of 11 percent but EBITDA and gross margins dipped 900-1000 basis points each.

Asian Paints’ profitability had been significantly impacted by the steep material inflation leading to PBT (profit before tax) loss, said Syngle. “Q2 PBT loss was at Rs. 17 crores and H1 (first half of FY22 PBT loss at Rs. 28 crores),” he added.

However, the price hikes by the company, indicate brokerages, is likely to offset the rising input costs and ease the pressure on their margins.

“With this sharp price increase we expect Asian Paint’s margin gap to be materially bridged and will require only 5 percent additional price increase (ceteris paribus) to fully bridge the gap,” said Nomura.

Abneesh Roy, executive director, Edelweiss Securities said this very sharp increase shows Asian Paints has taken feedback from investors to have a more balanced approach to growth with a focus on both volume growth and margins.

Sky-high inflation

Most consumer goods companies have witnessed unprecedented inflation in several key raw materials in the past year. According to analysts, the prices of key input products such as edible oil including palm oil, crude-linked derivatives as well as agri-commodities have soared since the onset of the COVID-19 pandemic. On top of this, the companies are also grappling with rising freight costs as fuel prices reach a skyrocketing level in the country.

“We have never seen inflation levels like this, going from 20-22 percent kind of level. And it is all across, not only in crude but across in titanium, in monomers, in additives, in terms of a lot of other raw materials,” said Syngle while addressing the investors.

According to analysts, edible oil prices have climbed by 35-50 percent year-on-year (YoY), while that of crude derivatives, a key material for paint companies, has jumped by 30 percent YoY. Crude derivatives, according to analysts, contribute 55 percent of raw material costs of paint companies.

The quarter ahead might not offer much of a relief to paint companies.

“We will have to live with inflation for some time. There doesn’t seem to be any reprieve now, we are just hoping that we should not see another bout of the increase going ahead,” added Syngle.

Devika Singh
first published: Oct 27, 2021 09:21 am