Abhijit Roy, MD of Berger Paints gave his views on the company’s September quarter numbers. He says the company saw a margin expansion of about 20 percent this quarter and some amount of advantage will accrue again in Q3. He hopes to see EBITDA to sales ratio improve in Q3 and going forward probably in Q4 as well.
Below is the verbatim transcript of Abhijit Roy's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: Can you tell us what percentage of your raw material cost comes from oil and how much could the gross margin expansion be going ahead because of the big drop that we have seen in crude?
A: About 2.3 percent will be the impact. Entire thing is passed on to the raw material. Normally it doesn’t happen like that because there is a lag first of all and there are many raw material, which is a derivative of oil but there are other demand/supply situation, which comes into play. So the expected thing will be that there will be a definite improvement in Q3 but to what extent, we will have to wait and watch.
Latha: Can you give us some ballpark figure? You said 2.8 percent is the overall gross margin improvement if the entire price comes down, can we assume that there will be a 2 percent rise in gross margins?
A: No, what I was saying is that the impact of the overall raw material prices will be about 2.8 percent and raw material as a percentage of sale is about 60 percent for most of us. Therefore, if you take a look at that, it will impact you by about 1.1-1.2-1.3 percent of net sales.
Sonia: What about volume growth, what is the exact volume growth you have clocked in this quarter and how has urban demand been?
A: It raised to the double digit growth in the decorative side. Our growth rate that is there in the consolidated sheet, it came down a bit. Standalone growth rate was around 16 percent and overall in a consolidated sheet that you see, it is about 14.3. Two of our subsidiaries, one is Sherwin Williams, which we acquired last year - there we don’t have any growth, we are taking a conscious decision to correct the situation there in terms of profitability so another two quarters of pain there before we stabilise.
Latha: We are asking you volume. Was volume in double digits, was it about 11-12 percent?
A: Yes, the volume was in double digit as far as the decorative business is concerned in India.
Latha: And overall?
A: Overall of course we operate on other platforms in Nepal. We did quite well, which is a pure decorative play and Bolix in Poland was a bit of a struggle in Europe. So we had almost flat growth there.
Sonia: How many quarters do you think it would take for Berger Paints to see a meaningful recovery in margins or a meaningful growth in margins once all of these crude price fall gets factored in?
A: We had seen a margin expansion of about 20 percent this quarter and some amount of advantage will accrue again in Q3. So we hope to see that the EBITDA to sales ratio improves in Q3 and going forward probably in Q4 as well.
It is not only the price factor which will drive of course, our mix which is improving more towards emulsions and higher emulsions and we are specifically the premium emulsion where we are doing quite well now.
Latha: What is the market share in the premium segment and in the non-premium segment?
A: We have improved it considerably in the premium segment. I think we would be number two now in India in the premium segment.
Latha: Can you give us therefore some ballpark idea of what you are expecting in terms of revenue growth and margins for FY16?
A: It will be more or less in line with what we have been delivering so far. No major changes expected, hopefully we should continue on the same stream. If the economy looks up, the industrial side will improve significantly. On the domestic front, that will be more or less on the same trajectory.
Sonia: What about the international growth? That one has been lower than estimated this time. What kind of growth do you expect to see in the quarters to come?
A: Difficult to say because Europe is not growing very fast and therefore Poland is the main operation for us there. Nepal will continue to do very well, probably grow in excess of 20 percent.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
