With crude oil trading above $100 per barrel owing to Russia’s invasion of Ukraine, what is worrisome is how it will pan out for businesses that use it as a raw material. To understand its implications on the paint business, CNBC-TV18 spoke to Abhijit Roy, MD & CEO, Berger Paints.
Roy clarified that out of 4 ingredients, only one of them is linked to crude. He added that monomers, which are solvent binders, are a derivative of crude. However, it is more affected by demand-supply issues than the price of crude itself. He cited that overall, solvent binders form 30-35 percent of Berger’s raw material basket.
He said, “There is a correlation between oil and some of our raw materials, but it is not as strong as it is normally felt. The rest is immune and not linked directly to oil. Yes, as oil prices go up, sometimes the packaging, freight prices also go up. So it’s in general an inflationary trend for the Indian economy. However, the type of closeness that one expects that if oil prices go up the paint prices will immediately follow suit, doesn’t happen.”
On inventory, he said that the company has stock that will last for the next 2-2.5 months, both in terms of finished goods as well as raw materials. He highlighted that he hasn’t seen such a sharp rise in paint selling prices. Going ahead, he doesn’t think a rise in prices will hurt demand as much as feared.
“We carry inventory; finished goods and raw material, which covers us for almost 2-2-5 months minimum, which means we are covered till April-end,” said Roy.
On gross margin, he said that it will move higher.
“Incrementally, the gross margins should be moving upwards a bit; there will be a movement upwards because the price increase impact will kick in from this quarter unless the oil prices move up further. It is always volatile and we do not know when it will shoot past USD 100 per barrel again, but if it remains at this level then there will be a marginal increase in the margin this quarter (Q4FY22),” he said.
For the entire interview, watch the accompanying video