Painting A Rosy Picture: Q3FY24 Sets The Stage For Bumper Sales For Paint Majors

Amid the soft performance in the paint segment during the second quarter of the financial year 2024 (Q2FY23), players are anticipating a positive change in the upcoming third quarter of the financial year 2024 (Q3FY24) results, fueled by festive season demand.

While market conditions were sluggish during Q2, demand picked up in the December quarter due to the festive and peak wedding season.

“Apart from this, increased demand is witnessed during a year when Diwali falls in November due to a longer available painting time post-monsoon and pre-Diwali period,” said Kuldip Raina, Director of Sales & Marketing at Shalimar Paints.

Amit Syngle, Managing Director & CEO of Asian Paints, mentioned during the Q2 earnings call that the company is looking at Q3 for growth. "The exit of September was strong, and therefore we are looking at a good 40 days of October and the first ten days of November being very strong, which is happening because of the overall festive demand," Syngle said.

The company also expects to capitalise during the wedding season (November and December). "Typically, there is a lot of painting that happens around wedding time,” Syngle highlighted.

Nippon Paints, another player in the paint segment, also anticipates a positive influence on Q3 results. 

Mark Titus, AVP-Marketing at Nippon Paint India, said, “We foresee a positive influence in the December quarter, propelled by the continuing festive season and year-end, which is expected to stimulate heightened consumer spending and enhance revenue.”

With around 20 per cent market share, Berger Paints witnessed a good October in the Diwali belt, according to Abhijit Roy, MD & CEO of Berger Paints, during an earnings call.

Impact of Extended Monsoon on Sales

During Q2, Asian Paints reported flat value growth of about 1.1 percent. Similarly, the gap between the volume and value growth of Berger Paints was significant. Though the company maintained double-digit volume growth for the quarter, the value growth was much lower.

Due to the erratic and sporadic rainfall in Q2, Syngle asserted, "We saw a shift towards possibly a longer festival season, and therefore, what we are seeing is right from September 15 onwards."

The extended monsoon resulted in a low off-take of exterior and interior premium emulsion, with more sales in the economic category of economy emulsion, primers, distemper, and pati. As a result, the value change growth was relatively low.

“We also sold much fewer first-quality enamels in this quarter, which is a high ASP product, and therefore the value field looks a little bit slower than normal. So that is the explanation for the volume-value differential,” Roy explained.

Additionally, the differences seen in the second quarter between rural and urban centres are noteworthy.

“We have seen that there is a change from Q1 to Q2. Today, the urban centres have done better than the rural centres, and that is causing some of the dip in terms of demand,” Syngle underlined.

Geopolitical Factors and Industry Impact

The kind of deflation that the industry has seen in Q1 and Q2 is something the company doesn't see continuing. “In fact, we see going forward, there will be some inflation,” Syngle said.

With expected inflation, Asian Paints, at the time of the Q2 meeting, was not looking at a price increase. However, it might have to consider prices depending on how inflation takes place going forward.

“There is some balancing happening with material prices going up, and this is a trend which I see in Q3 and Q4 going forward,” Syngle added.

The larger geopolitical situation has put pressure on crude, which will lead to the industry seeing an increase in prices. From the point of view of currency fluctuations, the impact might reflect on the Q3 results of the companies.

“We don't know which way it is going. As a result, what we are looking at is that possibly in the coming quarter, you will definitely see some upswing in terms of material prices, especially where crude derivatives and solvents are concerned,” Syngle said.

Diwali Period Affects Paint Sales

In general, an extended Diwali period has a positive impact on the sector for approximately 45-60 days, starting from the second half of September.

“What we have seen in general is that whenever there is a longer Diwali, definitely we find that the longer Diwali helps the period of about 45-60 days, starting from the second fortnight of September onwards. Therefore, you get a larger play because, please remember, monsoons do continue in larger parts of the country till September end,” Syngle asserted.

In a short period of Diwali, it gets affected because the season will not typically start from the beginning of September. The extended Diwali helps in terms of a larger demand, and therefore, the respective quarter gets affected, Syngle added.