Berger Paints posted a slightly weak first quarter numbers with 9 percent revenue growth and mid-single digit volume growth.
Abhijit Roy, MD & CEO, Berger Paints in an interview to CNBC-TV18 discussed the quarterly numbers in detail, the impact of GST and the outlook for the company going forward.
He said GST would in fact be slightly margin accretive for the company but it is a bit early to say if organised sector will see a shift from unorganised.
On the business front, there was demand recovery seen in month of July and August and he expects to see a double-digit volume growth in FY18 if September to fairs well.
Below is the verbatim transcript of the interview.
Surabhi: Now that a lot of this goods and services tax (GST) business is behind us, tell us if the market is stabilising and in the run up to the festive season, what are the volume trends looking like?
A: It is improving. July, it improved from what it was in June and August is better and September should be even better. So second quarter should be good.
Surabhi: Second quarter better than second quarter last year or similar to last year?
A: No, it will be better than last year possibly.
Latha: How much of your GST payment you will recover back through input tax? What will be the split in your case? I am trying to go from the micro to the macro. Yesterday, we got this big GST number Rs 92,000 crore but some of it will have to be paid back as input tax credit. We do not know how much that number is. So in your case, what part of the GST are you expecting back as input tax credit?
A: We have not worked out the exact numbers, but I can only say that as far as GST is concerned, earlier whatever we were paying in terms of taxes on various platforms which is excise, value added tax (VAT), etc. here it will be slightly better off in the sense that input tax credit, when we take it, it will be marginally, margin accretive which means it will improve our margin a little bit.
Latha: So you will get more credit than you got in the previous regime?
A: Slightly, because we have some of the factories in West Bengal where we were not getting credit for sending material outside the state. Now, we will get that benefit as well.
Anuj: The consensus was that big players and organised players like you would eat away the unorganised market, at least a large part of that share. If you could update us on whether that has actually transpired on ground or have you seen early signs of that?
A: Too premature to say and I do not think that is going to happen in a hurry. The unorganised sector has its own advantages given the Indian context. Being able to respond much faster on the ground to local requirements is something which the bigger players may not be able to do. Some consolidation might happen, but that is too premature. As of now, we cannot say.
Latha: Could you take on board your entire small and medium enterprise (SME) suppliers and get them registered into GST or did you have to change your suppliers?
A: No mostly, we had more or less organised players supplying to us. Therefore, that was not a major concern area and for us, we have made it compulsory that everyone has to be GST registered.
Surabhi: I am going to come back to the point that you made on the quarter. The fact that the second quarter is looking good. Can you give us a sense of the volume growth? First quarter was mid-single digits, is it now high-single digits, can you hope to do double digits?
A: No, it will go up to double digits. If September goes well, it is too early to say, but if September goes well, as is expected, the trend looks good, so then we should get into double digits.
Surabhi: Let me then as you this. I believe you had already taken a price hike of about 5-5.5 percent in Q1. Is there any need to move that needle even further on prices or otherwise you think you will keep prices stable and let this be just great volume growth in the second quarter?
A: Yes, I think so. Most probably the prices will remain where it is. I do not think there is any immediate need for us to tinker with the prices now.
Latha: If you can give a number on volume growth, your early expectation? And more importantly, gross margins, do they remain at 45 percent, do they get better? How are raw material prices trending as of now?
A: Raw material prices are more or less at the level at which it was. There has been no major disruption or change in terms of the raw material prices. So the margins, because of this price hike which we have taken should improve from what it was in the first quarter, that is for sure and the volumes look good. So second quarter should be reasonably good. Third quarter might be slightly better than the second quarter.
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