Companies

Abhishek Law | New Delhi, June 7 | Updated on: Jun 08, 2022

Company could take calibrated price hikes if raw material costs continue to inch upwards, he said

Akzo Nobel India, amongst the top four paint-makers in the country, expects raw material price pressures to continue for some more time. It expects both input prices and demand – which remain buoyant – to stabilise “by Diwali” around September–October.

The Akzo Nobel India Managing Director, Rajiv Rajgopal, said the “commodity price increase” is “not behind us”.

The paintmaker, who owns the Dulux brand, has initiated two price increases in this calendar year – a 4.7 per cent hike in January and another 3 per cent in May.

Considering the commodity price movements, “there could be a calibrated price increase”.

Akzo already sells at 3 per cent above the competition; and it has taken the lead in opting for price hikes.

Akzo reported revenue, EBITDA and PAT growth of 11 per cent, 5 per cent and around 1 per cent y-o-y for FY22. The company raised prices by 17 per cent till December last year.

The gross margin declined 266 basis points due to higher input prices, partially offset by a better revenue mix. Its EBITDA margin declined 82 basis points due to operating leverage, cost-savings initiatives and a likely reduction in ad-spends.

According to a report by ICICI Securities, “the company’s revenue growth was higher” than its peers and it had gained market share in Q4FY22 (Jan–March).

“Commodity price increases are not behind us. Demand remains buoyant at the moment. We are hoping that there will be some stabilisation in demand by Diwali, September-end or Octobe. It is expected raw material prices will stabilise around that period,” Rajgopal told BusinessLine.

In case of the key raw material for paints – tianium di oxide (a crude derivative) prices have neither “softened on expected lines” and nor is there an easing.”Some stability is there” he said adding that “for perhaps some flattening” to happen, one needs to be “looking at another two to three months”.

“A calibrated price increase would be looked at, if the upward trend in raw material prices continue. Crude is hovering around $120 a barrel and there is currency volatility too. The good thing is, we continue to see a pick-up in demand,” he added.

In terms of segment pricing, retail paint prices have seen the fastest increase, while in projects, which are long-term contracts, price hikes come with a 2–3 month time lag.

“Low-price emulsions as well as premium paints did well, but there was slightly muted growth in economy paints. It did well in aesthetics and powder coating, but the growth in automotive and specialty coatings was muted due to semiconductor issues,” the ICICI Securities report said.

Akzo will continue to invest in industrial coatings and has added consumers such as McLaren and BMW. According to Rajgopal, distribution will be expanded to 35,000-odd outlets in 9,000 cities. Its current reach is 20,000 dealers and 15,000 tinting machines.

Published on June 07, 2022