'Urbanisation offers growth for input-based firms'
Even as the industry grapples with rising input costs, Berger Paints is competing with Nerolac to become India's second-largest paint retailing company. Chief Operating Officer Abhijit Roy, who would take over as the company's chief executive next year, in an interview with Swati Garg, outlines the issues marring the industry and the solutions to these concerns. He also speaks about the company's long-term investment plans and growth prospects. Edited excerpts:
With demand in the auto industry slated to witness a slowdown and the real estate business in India in turmoil, how would this affect Berger Paints?
Fortunately, we are not a big player as far as the auto space is concerned. Roughly, 78-80 per cent of our business is related to the décor line, in which new projects are a minority in terms of incoming business, accounting for just about 20 per cent, while re-painting account for 80 per cent of the business. Therefore, while like all other significant players we would be affected by a slowdown in the auto and real estate segments, Berger Paints is, in a way, insulated from the major portions of the impact.
Assuming the slowdown in related businesses does not hit you hard, what are Berger Paints’ near-term growth projections?
The industry is currently growing at 23 per cent. Berger Paints expects to see a growth of about 20 per cent as well. A lot would depend on price modifications.
Are you planning to increase prices again?
We have increased prices once this year, and the second rise is due to be effective from June. The issue of continuous rise in prices is related to the incessant rise in raw material prices, which is difficult for us to absorb. We have no way out but to pass this inflation to our customers.
The problem is there is no apparent reason for rising raw material costs, besides the fact that there was a supply overkill which is now being met through increasing demand, which translates into higher input costs. I do see consolidation in the near future and do not envisage another rise anytime soon.
Besides input cost considerations, what is the outlook for the paint industry?
With urbanisation in India slated to grow from the current range of 20-25 per cent to about 50 per cent over the next decade, any industry which is an input product commodity one would grow at a healthy rate. Paint is no exception —consumption is slated to double over the next five years. Also, the painting time is reducing from the earlier four-five years to two-three years. With infrastructure slated to grow at a healthy rate of 12-15 per cent, we are looking at strong growth projections for our protective coating product segment.
So, would it be correct to assume the next growth push would come from the rural segment?
It would be more correct to say the next growth push will come from the ‘rurban’ segment. Business would obviously grow here, given the low base. But one has to consider the fact that for business to grow in this segment, the pre-supposition remains the requirement of 'pucca' houses. Also, prices are an issue here. So, while in urban regions we sell packs of five-kg distemper, in rural areas, we sell them in packs of one kg as well. And yes, while the rate of growth in rural areas remains strong, in terms of overall volumes, urban sales pip rural sales will continue to do so.
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