Paint makers stress over high raw material costs and fewer tinting machines even as festive demand picks up

• Shares of most paint makers have fallen in the last five days after one of the leading players, Asian Paints, reported a slowdown in profit on concerns over rising raw material prices.
• Moreover, the market leader expects the increase in raw material prices to persist for some more time, which will eventually impact profits.
• Raw material prices have been pushed up due to the high crude oil prices

More than the excitement for anticipated demand during Diwali, an Indian festival, paint manufacturers are worried about the rising raw material prices hitting their profitability.

The concern over rising costs elevated after one of the leading players, Asian Paints, reported a fall in profit due to high raw material prices, which is further expected to remain high for some time. Raw material prices have been pushed up due to the high crude oil prices. Note that half of the material used by paint companies are crude oil derivatives.

Asian Paints reported a decline in net profit to ₹595 crore in September, below analysts’ expectations.

"Steep inflation seen in raw material prices, since the beginning of this calendar year, has been phenomenal and has impacted gross margins across all businesses in the quarter," said Amit Syngle, managing director and chief executive of Asian Paints in a statement to an exchange on October 21.

The commentary on rising cost inflation hit shares of other paint makers fearing slowdown in profitability in the near term.

“Higher input prices will keep margins of the paint companies in the near term,” said a report by broking house Sharekhan.

Adding to it, global chip shortage could impact supply of tinting machines which are key for paint dealers.

The chip shortage could reportedly impact the supply of tinting machines and the expansion plans of paint companies. These machines help shops create different shades of paints within the store, in line with the requirement of customers.

Dealers who use tinting machines do not have to hold large amounts of shades in stock.

“We expect delays in (the supply of) tinting machines to remain for a few quarters for most paint companies. We expect less impact on top two companies, Asian Paints and Berger Paints, as they already have a high tinting machine penetration compared to smaller peers," said analysts at Edelweiss Securities, reportedly.

With steep inflation in input costs weighing on profitability, paint companies may announce further price hikes and pass on the burden to consumers.

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