InvestorQ : Why are paint companies like Asian Paints, Kansai Nerolac and Berger Paints under so much pressure?
Mitali Bhutta made post

Why are paint companies like Asian Paints, Kansai Nerolac and Berger Paints under so much pressure?

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3 weeks ago
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In the recent past, there has been no shortage of problems for the paint companies in India. For starters, the input costs were rising and demand was falling amidst rising prices. To add to it, rural India has seen a sharp slowdown in income growth so the demand for paints from the rural and semi-urban centres has also been falling. Now the latest risk has come in the form of down trading, wherein leading paint companies are losing their market share to cheaper alternatives from the unorganized paint manufacturing sector.

Let us go back to the core problems and why they have come about. The spike in crude oil prices in the last few months translated into a spike in input cost for paints. Crude and intermediate chemicals are key inputs for paints. To add to their woes, even the packaging costs have gone up sharply and that put further pressure on paints companies. Higher cost forced price hikes and that dampened sentiments and demand, mainly in the rural and semi-urban areas. Overall, sales are under stress and so are the operating profit margins.

Now another angle has come in the form of down trading. What exactly is down trading? It is about consumers shifting to cheaper options since branded product may have become too expensive for their wallets. For instance, in 2021, the price gap between the organized and unorganized sector had narrowed in paints. But, with organized players hiking prices aggressively, most of the large players like Asian Paints, Berger Paints and Kansai Nerolac are losing out market share to the unorganized companies that sell paints cheaper.

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