Painting A Bright Picture

The improvement in sales is due to the grabbing of market share from smaller players (including SSI units), according to Ashit Kothari, analyst, SMIFS Securities. Also, the new excise structure levying duty based on the maximum retail price saw dealers rushing to stock up in August leading to an unusual jump in sales.

Industry sources say the premium decorative segment contributed the maximum to growth in first half 1997-98. In the case of ICI, the paints division is estimated to have shown approximately 25 per cent growth. Having commissioned a new plant at Thane and due to open another at Chandigarh shortly, each with a capacity of 20,000 tonnes, ICI is offering huge discounts to maintain volume growth.

 

However, Goodlass Nerolac (GNL), which has a major presence in the automotive paints segment, showed marginally lower sales growth at 11.31 per cent to Rs 199.24 crore. Given the pitiful state of the automobile industry, analysts feel this growth was better than expected. Its performance was due to the steady offtake from Maruti Udyog and good response to its premium decorative paint, Allscapes.

The drop in margins, however, is a cause for concern. This is partly due to the fact that companies are offering hefty discounts to push up sales. Another reason is a rise in the cost of titanium dioxide, a key raw material, which accounts for about 20 per cent of the cost. International prices which were ruling around $1,550 in March is currently around $1,900. About 40 per cent of the industrys requirement is imported and the rupee depreciation will further result in a cost hike. However, raw material prices of pthalic anhydride and pentaerythritol have been at the same levels.

In the second half, analysts expect the paint companies to accomplish a similar growth in the bottomline aided by the lower tax and interest burden. However, they do not expect a similar sales growth in the second half.

Analysts feel that although they may show a volume growth, there will be a decline in terms of value because of the price cutting. The receivables position is also likely to worsen as a result of the efforts to pump up sales.