Demonetisation effect : Berger Paints corrects course to stabilise top line

The company was expecting a 17-18% growth in the ongoing quarter which has now been downgraded to 12-13%

Prime minister Narendra Modi’s move to drive out black money from the economy by demonetising Rs 500 and 1000 bank notes overnight, ticked an emergency situation in the paints industry with Berger Paints, the second largest paint-maker in the country, responding to the crisis by course correcting its growth strategy.

Kuldip Singh Dhingra promoted Berger Paints, which commands 18 per cent of the decorative Indian paint market, has adopted a two-pronged strategy to ensure its topline takes minimal hit as consumers resort to discretionary purchases making paints a secondary or deferred priority.

The Kolkata-based firm was expecting a 17-18 per cent growth in the paints business in the ongoing October-December quarter which has now been downgraded to 12-13 per cent.

While the paint industry is 80-85 per cent cash-driven with the paint retailers accepting only cash payments for the sales, Abhijit Roy, managing director of Berger Paints, is now asking its 3000-strong major dealers to shift over to digitised payments to keep the business going.

“We have changed the strategy now to maintain a topline growth”, the company’s managing director and CEO, Abhijit Roy told Business Standard.

Not only is Roy touring the country restoring dealer confidence in such a crucial juncture, he is also facilitating the dealers to shift over to e-payments. The company is in talks with various agencies which install card swiping machines to install the same in the dealer outlets while it is also roping in mobile wallet provider Paytm, to connect its dealers to the mobile payments network.

“They (dealers) too have started to understand that the future of this trade is in digitsed payments and the time of cash transactions is nearing an end”, he told this newspaper adding that atleast 50 per cent of the paints dealers will shift over to electronic payments in the coming days.

The dealers contend credit and debit card payments as there is a 1.4-1.8 per cent fee attached to all transactions which pulls down their net bottomline. Besides, as many as 70 per cent of the dealers in this segment don’t have any card swiping machines.

While it is expected that the effects of demonetisation will go on for the coming one and a half months on the paints industry, Berger Paints will focus more on the upcountry market, where it perceives the impact to be lesser than the metros.

“During this time, we’ll focus on the upcountry markets more than the metros as we see more demand there”, Roy said adding that the company will undertake aggressive dealer network expansion in these areas besides spending on advertisements targeted towards the semi-urban and rural populace.

According to the company, the provisions for the 2016-17 Budget is expected to revive rural consumption, which has been subdued for the past two years.

The upcountry market currently contributes 50 per cent to the company’s overall sales.

Also, it is considering extending the credit period to dealers by seven days from the existing 14 days to push sales.

Brokerage firm, Edelweiss Securities has stated the impact of demonetisation to be larger on the paints industry in the near term.

According to Abneesh Roy, research analyst at Edelweiss Securities, it costs between Rs 1-1.25 lakh to decently paint a 1,000 sq ft house. 

“Painting being a high ticket item, the impact can be larger and there will certainly be postponement of demand”, he said.

Financial Year	Gross Revenue (in Rs crore)	PAT* (in Rs crore)
2011-12	3193.68	180.04
2012-13	3663.12	218.40
2013-14	4250.71	249.39
2014-15	4758.67	264.70
2015-16	5111.70	369.77

*PAT: Profit After Tax