Top paint cos Asian Paints, Berger Paints revamping cost structures to protect margins

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As competition intensifies and demand remains subdued, India's leading paint manufacturers are tightening their belts and looking for ways to optimise expenses, according to analysts and industry executives.  Asian Paints, Berger Paints, and Akzo Nobel are spearheading cost-cutting measures across their operations, from slashing overheads to enhancing productivity within their teams, to protect margins.

With the entry of new players, heightened discounting activity and aggressive distribution strategy has enabled the traditional players to concentrate on further building the brand image. "We would definitely like to overall spend money in terms of really building the brand and looking at a strong mind share which is going to come about to that extent as we go forward," said Asian Paints Chief Executive Officer Amit Syngle in a post earnings call earlier this month.

Last quarter, the companies ramped up their spend for hiring  more sales personnel to penetrate smaller and untapped retail markets. However, now, the companies are taking a step back to review their cost structures.

"The entry of deep-pocketed new players with significant investment commitments could drive shifts in market share and cost structures across the industry," brokerage Motilal Oswal said in a recent note.

Asian Paints, the number one paint maker, for instance said it is looking to recover more cost internally. "We are looking at optimising all the areas of cost which are there in the organisation. Whether it is from a point of view of looking at overheads which are related to possibly travel and other areas which are there... looking at how we can basically optimize the overall operating expenses so that we can really have a good leverage in terms of going forward," said Syngle.

Its employee benefit expenses was down 12 per cent sequentially in Q3 and up 4 per cent YOY. Syngle flagged that the company has been hiring strategically and then improving efficiency, rather than continuously increasing headcount.  "One area which we are clearly looking at in terms of going forward, is how we can utilise the number of people much better in terms of the overall productivity," Syngle said.

Similarly, Berger paints also talked about conserving "as much as possible" going forward. The second largest company is the only to continue to gain market share and report high single-digit volume growth on the back of strong brand and distribution channels. However, the company is still looking at cutting out 'non essential' expenses.

"In many cases, people have reduced their ad spends. We have maintained our ad spends at the same levels as earlier. But there are other areas where we have cut back, which I believe we could afford to. Overheads have been reduced to a large extent, and some amount of technology has been introduced. New startups have also helped us generate savings. These efforts will continue, and going forward, you will see these costs being kept under control," said Managing Director Abhijith Roy.

Dulux maker Akzo Nobel flagged that the  company is adopting a "less is more" approach to drive efficiency. Additionally, it has restructured certain roles, particularly in key account management, integrating them into existing frameworks as market channels mature.  "We've also looked at productivity of our teams, and put in certain stronger metrics to make sure that we are able to improve productivity," said  Chairman and Managing Director Rajiv Rajgopal.

The slew of measures come as most paint players reel under the slowdown which started to impact earnings since the fourth quarter of FY24, amid rising crude prices and weakness in demand for the decorative paints segment, especially in the urban market.

In the quarter ended December, top paint manufacturers registered low to mid-single digit volume growth, except for Berger Paints. However, weak urban demand for decorative paints and delayed repainting cycles caused these companies to report negtive to low-single digit value growth in the third quarter. The quarter was slightly better for the companies due to strong demand for industrial paints. Going ahead, companies are looking at their cost structures to aid margins amid the intense competition from new players. Paint companies are primarily aiming to keep the ad spends at current levels while looking at productivity and cost control measures.