See volume growth below 20% in Q4 FY16: Berger Paints

Berger Paints' growth in the last three months has been better year-on-year (YoY) says, Abhijit Roy, MD and CEO of the company. The company's high-end products have done better than the economy segment in Q3, he says. While urban demand is seeing a pick-up in the decorative segment, rural is still stagnant, Roy tells CNBC-TV18. So, it would be difficult to attain 20 percent volume growth in the near-term, he says, adding, margins will remain at around 16.2 percent in the fourth quarter. Further, Roy says good monsoon and implementation of the pay commission will have a positive impact on the paint industry. On his Budget expectation, he says there is dire need for duties being restructured.Below is the verbatim transcript of Abhijit Roy\\'s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: You are best placed to tell us about whether demand is picking up or not. It is showing in your numbers. You had a good quarter gone by but do you see the industry as a whole returning to 20 percent plus volume growth anytime soon. It doesn\\'t have to happen now but six months or eight months down the line and what would the near term trajectory be in terms of volume growth?A: As far as we are concerned, the way things are panning out, it looks like that it will not be very easy to touch 20 percent volume growth level at the present moment. It depends on two factors essentially. One, rural demand is picking up. I heard one of your guests speaking about the possibility of rainfall being adequate this year because it has been bad for two years and it is unlikely that it will be bad again. So if that happens that will give a boost to the sale, but to a large extent it is dependent on monsoon.On the decorative side rural demand is the major category which has to pick up. Urban demand, there has been some uptick which is why we had fairly robust volume growth in Q3 which was in access of almost 15 percent but that was also driven to some extent by the seasonal factor. Last year Diwali was early and therefore we got one full month this year in Q3 which is why against the base of last year we could do this type of a volume growth but won't be sustainable unless things move up in the economy.Latha: You are not looking quarterly. You a businessman and you look through these quarters. So a general question to you, are you seeing 2016, the first 50 days look any better than the year ago same two months. Is there a secular improvement however marginal?A: That is there, in fact we are more hopeful in 2016-17 than we were in 2015-16. As I said we expect the rainfall to be better, one. Second, the Pay Commission money will be coming and that normally has a positive impact on the ground. Three, I think there will be some movement forward on smart cities, on urban housing which are good for paint industry at least, so that is a positive which is likely to impact us. So these are the three important factors which will help us. Latha: I am asking you whether the last 100 days were better than year ago levels.A: Yes, slightly better than year ago levels. Obviously evident from the growth rate that we are registering, so yes, it was better.Latha: Which segments? Is it decorative, value-added? Are those higher level products that are doing well or is it also your mass product?A: No, mainly the higher value-added products. The mass products still not going as well as we would want it to.Latha: Have you seen the best of the raw material price impact on the margins or do you think there is more to go. Will you benefit in the quarters to come as well and do you think you can do better margins than 16 percent that you have done in the quarter gone by?A: It depends how the raw material prices hold. As of now it looks like it will be more or less stable at this point which means margin will be at similar lines at least in Q4, if not going forward. The first two quarters should be reasonably good in the next year because the advantage of the raw material price drops will remain with us. It will only be tapering off a bit in the Q3 and Q4 onwards. Latha: Is there a possibility that because you have advantage of low raw materials as well as now perhaps inventory wise your material cost will be low that you can pass on lower prices and therefore take a hit on margins but improve volumes. Is that a strategy at all for Q4 or Q1 of next year?A: It will depend. There are two-three factors which we have to weigh in. Budget is coming. We need to see what is happening in the Budget, whether duties are being restructured. The other two things which are happening is that the oil prices have started moving up. So we need to be careful as to whether we first decrease it and then increase it. It destabilises the pricing game and third factor is the rupee against the dollar, we have a significant import component also which is about 25 percent odd. If the rupee keeps depreciating against the dollar then that pushed up the cost and therefore we do not want to drop the prices unnecessarily.