See single-digit growth in H1FY14: Nerolac

Nerolac Kansai's Q4 net profit of Rs 122.70 crore was no surprise, says HM Bharuka, managing director, Nerolac. According to Bharuka, the company was expected to come out with bad numbers on the back of slowdown in the auto and the housing sector.

"It was expected that the fourth quarter would be lower compared to the corresponding quarter of the last year. The effect of the interest rate and effect of the slowdown on the automobile as well as on the housing sector is definitely seen now and we had expected the lag effect would come," Bharuka told CNBC-TV18.
Bharuka is bearish on the company's growth rate for the next couple of quarters. Despite the marginal decrease in interest rates, Bharuka believes there will not be any uptick in the company’s business. Bharuka is expecting a single digit growth for first half of FY14.

Below is the edited transcript of Bharuka’s interview of CNBC-TV18. Q: Disappointing growth figures from Kansai Nerolac this quarter around. Was it primarily the industrial side that suffered? Could you just walk us through what the experience was?
A: It was expected that the fourth quarter would be lower compared to the corresponding quarter of the last year. The effect of the interest rate and effect of the slowdown on the automobile as well as on the housing sector is definitely seen now and we had expected the lag effect would come. So, fourth quarter was expected to be muted and so both segments, whether industrial or decorative had a muted growth. So, it is not surprising as far as we are concerned. This was expected. Q: You have also had fairly flat margin performance despite the fact that a lot of the input costs actually cooled off. Would you expect to see any improvement on margins or do you think they will stay in this 10-11 percent range?
A: I do not think raw material prices had gone down in the fourth quarter. One of the important key raw materials, titanium dioxide (TiO2O) has gone down, but there was an inventory which the companies were carrying. The rupee too was quite volatile and prices of some of the oils have actually gone up in the last quarter. So, overall, the last quarter had inflation with no decrease in the prices.
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From that perspective, we have been able to maintain the margin of the last corresponding quarter. It was a fairly decent quarter looking at the internal numbers. However, because the growth was flat and there were other overheads which were going up and that is a cause of concern. That is why we have seen a flat growth. Otherwise, on a contribution perspective, on the marginal cost there is an improvement of 100 bps. Q: Was the slowdown in the auto sales a one-off event in the sense because of developments with Maruti etc. or would you say that you are expecting to see some sluggishness in the next couple of quarters as well from autos generally and industrials as a whole?
A: If one looks at the Society of Indian Automobile Manufacturers (SIAM) number, which have come for the entire year, they are not showing a good trend. Last quarter was very bad quarter for the auto industry and the effect of interest rate is definitely seen on the auto numbers as of now. Even though interest rates have marginally gone down, we do not expect improvement to take place in the near-future. So, we still feel it would be a sluggish growth in the next two quarters, both for auto as well as for the decorative side. Decorative side would be relatively better because there is a maintenance demand of about 70-75 percent. That should be good, but the fresh demand of the new housing sector would continue to be negative or wont have any great numbers. Q: What kind of growth are you expecting to see even in the first half of FY14?
A: It is difficult to say. However, because the commodity prices have gone down now and maybe going forward there would be no pressure on the cost front, so stability would come to the market. We see some growth expecting a good monsoon. If the sentiment becomes positive, we would still have a positive growth, but certainly not what industry is expecting of double digit growth. So, it could be a single digit growth for this year.