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Last Updated : Feb 21, 2017 02:26 PM IST | Source: CNBC-TV18

Asian Paints CEO sees limited impact of GST-led disruption

According to Asian Paints CEO KBS Anand, Goods won't create a disruption which will last for more than a quarter. He added that GST will enable the organised sector to perform better depending upon tax rates on paints.

Asian Paints which is still experiencing the after-effects of demonetisation expects a better show in the fourth quarter ending March 31, 2017.

Markets haven’t returned to complete normalcy post demonetisation, however, Q4 will be better than Q3, said KBS Anand, Managing Director and Chief Executive Officer of Asian Paints.

Speaking to CNBC-TV18, Anand said both urban and rural areas were equally affected by demonetisation. However, it is the northern parts of India which are seeing a delayed recovery from the cash crunch impact, he said.

According to Anand, Goods and Services Tax (GST) won't create a disruption which will last for more than a quarter. He added that GST will enable organised sector to perform better depending upon tax rates on paints.

He said that the company has announced a price hike of 3 percent on its products. However, the company may see a further price hike or reduction depending upon factors such as raw material cost and currency fluctuation.

The company posted a consolidated net profit of Rs 489.31 crore for the quarter ended December 2016, an increase of 1.52 percent on a year-on-year basis.

Below is the verbatim transcript of KBS Anand's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Sonia: Is there complete normalcy that has returned into the paints industry post the impact of demonetisation or do you still see some more pain left?

A: Things are definitely better but it is not complete normalcy as yet.

Latha: The volume numbers itself were 12-14 percent volumes in the previous quarters, second quarter, first quarter and before, it dropped 2-3 percent in the demonetisation quarter, when you say partially returning, should we expect double digits at all this quarter?

A: I don’t give future guidance.

Latha: We are 50 days into this quarter, I am asking you past only?

A: Things are a little better than Q3. We are hopeful things will improve further but the north has taken a little longer to recover. The others are better off.

Anuj: Would you say that recovery -- you said north, mainly in rural areas, would that be right and is it because the north deals more with cash compared to the rest of the country, could that be a bit of an issue?

A: Yes, that is probably the issue but it is all areas, it is not just a rural. Even the cities are affected to an extent because they are impacted by rural business. There is some wholesaling and there is some stuff like that. So there is an impact.

Latha: Would you expect that you will have at least one completely normal quarter, like the previous Q2s and the Q1s before goods and services tax (GST) strikes, GST is like July 1, so you still get the pre-monsoon quarter, don't you?

A: I think we should.

Sonia: How difficult is it at the moment to hold on to margins at these levels considering that raw material prices are shooting up and you have so much competition as well?

A: We have announced 3 percent price increase from March 1.

Latha: How bad will the GST disruption be? Do you expect it to be a quarter, two quarters and thereafter do you expect a better than current growth because the informal sector will not be as strong?

A: There are two aspects to this. I don’t expect the disruption to be more than a quarter and it depends how the implementation on the ground is and how much clarity comes before everything is announced. The problem more is in terms of stock in trade as far as the retailers are concerned all over the country and how that would be handled. Once there is a little more clarity on that, probably things can be smoother.

Going forward, definitely the organised sector should do better but it also depends on what exactly is the tax rate for paints. If it is at the higher level, 28 percent it will take longer. If it is at the lower rate, it will be first up.

Anuj: You have made one acquisition in home improvement space, do you sense more opportunities there, you have a lot of cash of course and are there other areas like tiles, adhesives that you are looking at?

A: I don’t give you guidance on this but we are looking at various opportunities. If something attractive comes up, we will probably go ahead but both in the international space for paints as well as in home improvement we have been constantly on the lookout for what is good.

We are currently in the process of absorbing both our home improvement businesses, they have done better in this year than in the previous year although they have been more hit by monetisation than paints. So we are on the road to what we think is recovery and understanding the business but there is a long way to go.

Latha: Can you give us some timetable of when your capacity expansions come onstream?

A: It will be towards the end of 2019. Q3 of 2019 would be our Mysore plant and Q4 would be Visakhapatnam plant.

We have just started construction in the last quarter, so it takes about 24 months roughly speaking.

Latha: You are referring to the expansion in the Akleshwar Unit?

A: No, we have started construction in a unit in Mysore and a unit in Visakhapatnam, 300,000 KL each in the last quarter.

Sonia: You didn’t mention that you have undertaken a price hike already of around 3 percent?

A: We have announced a price hike.

Sonia: Would it offset or compensate for the higher raw material cost that you are seeing or do you think that you would have to take more price hikes in the near future as well?

A: It depends on how the rupee goes, the commodity prices goes, raw material prices go. They have been fluctuating, it is very difficult to anticipate fully. Yes, we have not covered the full extent of the current prices of raw materials but yet again they may drop or they may rise, we will have to go with how the prices roll.

Anuj: Let me get back to the volume because your growth was 3 percent and your competitor had a much smaller scale, Berger Paint still has a double digit growth, what do you think they could have done right compared to Asian Paints?

A: If you put it quarter-to-quarter, they have gained market share but I look at it differently. I do not think quarter-to-quarter is a right comparison because they are different geographies and different seasonalities in the picture. If you look quarter-on-quarter over two years, our growth rates are similar. If you look year-to-date, our growth rates are similar. So quarter-to-quarter it has no meaning in my book.

Latha: Should we say that normalcy is back in the April-June quarter?

A: Let us see. At the moment, I would say normalcy is not fully back.

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First Published on Feb 21, 2017 10:30 am
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