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    Demand robust and may remain like this going forward: Abhijit Roy, Berger Paints

    Synopsis

    "It seems that demand is pretty strong and probably will remain like this going forward."

    Abhijit Roy, MD & CEO, Berger PaintsAgencies
    The demand seems to be quite robust. In April it was quite good till the pandemic hit us. May was down, but June had bounced back to normalcy with very strong growth rates, said Abhijit Roy, MD & CEO, Berger Paints. Edited excerpts:

    What are the demand trends that you are foreseeing? Have things begun to pick up?
    Yes, the demand seems to be quite robust actually. In April also it was quite good till the pandemic hit us. It was the end of the month. May was down, but June had bounced back to normalcy with very strong growth rates. July it continued in that same way. And August so far has been good. So, it seems that demand is pretty strong and probably will remain like this going forward.

    How are you coping with commodity price inflation? Do you foresee commodity costs remaining escalated?
    The prices had gone up and you are aware of that. We had actually taken four price increases already in stages. More or less neutralising the entire raw material price increase in the decorative side. In industrial, the negotiations are still going on. So, we will hopefully finalise that as well. Little bit of marginal erosion as far as the gross margin is concerned. This should be more than made up through other means in terms of cost savings. We should be able to retain our margins at these levels.

    What are the price hikes you have taken? Does it cover the increase in input cost?
    Yes, that is what I said. More or less in the water base side which is a bulk of our sales, the price hikes that we have taken so far more or less entirely cover the price hike of RM. That way we are protecting a gross margin on that side. On the solvent side, which is primarily enamels, there are still some gaps. We have just declared another price increase effective August 19th.

    So, there will be a marginal erosion as I said because this is anyway a small segment and small portion of that is left over. From that perspective on the decorative side, we are relatively much more comfortable. On industrial side, it takes a little bit of time. We have got price increases in many of the accounts. In some negotiation is still on.

    In decorative what is the demand elasticity like? At what point according to you do customers tend to reconsider whether they want to go ahead with repainting?
    Fortunately, the price increases that we take normally, if you look at it on overall basket, is about 5% to 6% and that is also taken in stages. The pass through is normally seen to be quite normal. It does not really affect demand in a very strong way. A person who wants to paint if it goes up by 1% or 2%, really they do not change their decision based on that.

    Though it is discretionary, sometimes our indication has been so far that even in times of very bad periods, whether it is 2008-09, whether it is demonetisation, whether it is a pandemic, we have continued to grow. It is much more resilient that way compared to other normal discretionary products. I do not see any problem in terms of raising the prices or it impacting demand. We have already increased prices from May onwards, but July was quite robust that way. And August also continues to be reasonably good.

    There are two types of demand for the paint industry: repainting of house and demand coming from fresh construction. Are you getting evidence that the fresh construction demand has come back?

    I think there is some amount of surge in the new construction also which has now started happening. Of late, we have got some good projects also which have been initiated actually. This will run through the course of the year. The new construction business which was a little bit stagnant and actually on a decline whole of last year till the first seven-eight months has now picked up momentum coupled with the repainting, which is going on as is the usual case and relatively strong. This is adding to the overall growth rate.

    What would you describe the inventory levels as in the system ahead of the festive season?
    If you look at our end, it is quite thin because we had to do these price increases and typically the dealers tend to stock up at this point of time on those range of products on which the prices are going up. There is a mad scamper for the products at that point of time. So, there is actually a thinning out of inventory at our end.

    At the dealer end a little bit of stocking would have happened at every price increase; that has happened. But liquidation obviously has been happening because the payment cycle has been pretty strong. I presume sales are happening. We do not do the type of tracking that AC Nielson variety does in paint, but it is a fair indication that when the payment keeps coming and it is not getting stuck, obviously the sales have been quite strong on the ground.

    The paint industry in India is dominated by four players, soon it will be six. A management like yours will always say you welcome more competition, but more competition means more challenges in terms of market share and disruptive pricing.

    Yes, you know in fact one of them has been there for the last two-three years, and one is scheduled to enter competition. You cannot avoid it because there are already players in the industry which are incumbent players and many of them are world giants and we have also competition coming in from the conglomerates now. We have faced this in the past and we believe that we have our own strengths, our network, our painters. We have the brand which takes time to build.

    It is not as if brand building happens in a day or a month. It takes a long time in these types of categories. Worldwide it has been this phenomenon. If you look at for example Bangladesh, Berger Bangladesh is a leader four times the size of Asian Paints there and we remain at those elevated levels for last 10-12 years. Every trick in the book has been used, but nothing has changed much in that market.

    So, it is not that it is a very easy task to break into these types of markets, it is relatively much more robustly stagnant, I would say in terms of market share. So, it does not change that much in a short period of time. We are not unduly worried. As you rightly said, it does give us more impetus to become far more competitive, become much more efficient.


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