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Edelweiss Securities expects double-digit volume growth to continue for Asian Paints

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Abneesh Roy of Edelweiss Securities is of the view that the paint industry is currently seeing four-decade raw material inflation, which requires very high pricing action.

Asian Paints and Berger Paints have announced price hikes. Asian Paints has undertaken a price hike of 9 percent across portfolios. To discuss the impact of this, CNBC-TV18 caught up with Abneesh Roy of Edelweiss Securities. He said price hikes by paint companies was on the cards and that the hikes announced would be effective from 10th and 12th November for the different paint companies.
The hikes may not benefit the entire quarter but the worst of the gross margin and EBITDA margin pressure is behind them. Moreover, the premium products would sell better because of the festive season, he added.
We expect all other paint companies to follow Asian Paints and Berger Pains in terms of price hikes. However, the quantum of the hike was higher than our expectations, said Roy. “We were building in a gradual price hike first with 5 percent and then maybe the further 5 percent but at one go Asian and Berger have taken around 9- 10 percent price hikes, which is the highest ever,” he added.
For Asian Paints, the worst of the pressure in terms of gross margins was behind in Q2 but in Q3 they expect mid-quarter benefits due to price hikes, said Roy.
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He further said that the paint companies have very high pricing power and it is good to see Asian Paints go for a balanced approach wherein they are focusing on profitability and volume growth.
When asked if at the current price of around Rs 3000, the risk reward was favourable for Asian paints, Roy said, the risk reward in the current stock price is far more favourable than it was at Rs 3500.
Now the paint companies would have almost like a 15-16 percent weighted average hike post this hike, said Roy, adding that one must keep in mind that in Q3 and Q4, Asian paint has a very high base but even on that high base, they expect double digit volume growth to continue.
He is also of the view that this kind of sharp price hikes may not have an impact on the volume growth for most companies but at the lower end of the paint volumes, there could be some delay in terms of purchases by consumers. However, for the mid and premium segments, there won’t be delay.
Watch the accompanying video for the full discussion.