Asian Paints, one of the largest paint companies in India, on Thursday said that demand momentum is back to pre-Goods and Services Tax (GST) days.
In an interview to CNBC-TV18, KBS Anand, managing director and chief executive officer, said that competitive intensity in southern India continued.
Watch: Will pass on GST cut benefit to consumers, says Asian Paints
Talking on expansion plans, Anand said, "The first phase of Mysore would be coming on line in September of 300,000 KL per annum and the first phase of Vizag plant with 300,000 KL per annum is expected in January 2019."
Edited excerpts: How has the underlying demand environment been? Is it still of a low base or are you seeing momentum pickup?
It’s back to pre-GST days. So if you take the compound annual growth rate (CAGR) over two years, it isn’t fantastic. This is how I look at it. It’s okay; not great.
Could you throw some light on the competitive intensity now. I remember you telling us the last time around that there was an increased competition particularly down south. Has it stayed that way, increased or abated and any other geographies that you are facing higher competition now?
Competition is severe everywhere and has been that way for a longtime. There were some new players in the south or players that had got regressive in the south. That continues.
Has the competition got more aggressive?
They are as aggressive as they were last year.
You have taken a price hike to the tune of about 3-3.5 percent. How much more would have had to take to maintain margins at current levels?
There is a raw material increase in price of about 10 percent year-on-year (YoY), so ideally 60 percent I need to cover.
Does that mean a hit of that level can be expected on your margins going forward?
I cannot comment anything.
Other expenses as a percentage of sales has come down. Can you rationalise your cost more? Is there more headroom on the downside for you to cut expenditure?
There is always room for more.
You have some capacities coming on stream in the second half of this fiscal. Give us some timeline, what kind of initial production levels can we see at that new facility that is coming up?
The first phase of Mysore would be coming on line in September of 300,000 KL per annum and the first phase of Vizag plant with 300,000 KL per annum is expected in January ’19.
How much would that boost your current capacity and what is the current capacity utilization?
Our current capacity is about 1300,000 KL per annum and utilisation is about 75-80 percent. We are a seasonal company so utilisation has to take that into account.
There is a GST rate cut of about 10 percent. How does that change pricing for you, will you pass it across the board or change it strategically based on the product mix?
It doesn’t make any difference to us as an organisation, because the price we bill to our retailers remains the same; the billing price. The tax changes. So, the effective price to them reduces and the effective price to the consumer reduces.
Would you consider holding back on passing some of these cuts given the input prices have gone up?
I will have to pass them on, but I will have to assess when to pass it on. Every time there is a price change and there is a lot of instability in the market, because there are retailers who sell to retailers, who go to upcountry, there is wholesaling and whole pattern of things. Ideally, we do not like to do too much disturbance before Diwali period or seasonal period. This change itself would create a disturbance, because some retailers would be wary on how easily they will get credit on GST for the higher GST stock that they are holding and the very small dealers who are outside GST or in one percent scheme, will effectively lose.
Will you change prices across the board or pick and choose products to improve your product mix?
I do not discuss much pricing strategy with analysts. The first person to know would be my customers.
The company is looking at premiumisation. Does that trend continue?
It is continuing the same way. There is no real difference. Premiumisation continues.
We saw some traction in your non-paints business. Is that likely to continue?
Seen great traction in this quarter. Ideally, we had planned this thing last year, but GST hit this business badly and we are hopeful that this traction continues for the balanced portion of the year.
I am not talking about any acquisition at the moment.
Have you liked something enough to acquire in that space?