Margins under pressure due to rising crude prices: Kansai Nerolac

In an interview with ET Now, HM Bharuka, MD, Kansai Nerolac, gives his views on the company's performance and future plans. Excerpts:

ET Now: Your sales numbers have increased by 24%. If you could give us the split in terms of how much volume contribution and how much of a growth contribution was on account of price rises that you undertook?

HM Bharuka: The volume growth is to the tune of about 16% odd and value growth as you have seen is about 24%. So, balance is due to the increase in price as well as change of product mix.

ET Now: What about your market share and how that has moved for you for the quarter gone by?

HM Bharuka: Actually market share for the paint industry has not moved much. If you look at, all the companies in the industry have done very well, maybe marginal increase in market share for us both in decorative and industrial but not to talk about it. I would say market share has remained more or less same.

ET Now: Where do you see your operating profit margins moving at a time when commodity prices are moving up, crude prices have been rather volatile for the quarter gone by?

HM Bharuka: That’s a concern area. It is not only quarter 1. If you look at last six quarters, crude prices have been moving. And it is not only crude, derivatives of crude as well as AIO2, which is one of the important ingredient for the paint industry that has been going up. So that’s a challenge but we have been able to pass on in case of decorative almost entire cost increase to the market. In case of industrial, partly we have been able to pass on and balance, we are negotiating, so if you look at our margin compared to year on year, it has dropped by 1% point but if you look at quarter on quarter, it has improved substantially. So if you are able to maintain this margin, it is going to be a good year and prices have peaked as of now.

ET Now: So what is your sense, do you have enough room or elasticity to pass on the price hits that you are taking on the back of higher RMCs to your consumers?

HM Bharuka: That’s one of the concern area not because of the price elasticity of the paint, it is more to do with the demand. If you look at interest rate, which is hurting the auto industry, infrastructure story as well as the housing sector. So because of that, I would say demand can slow down but we still expect the growth, if you look at decorative, we are expecting about 10-15% growth in decorative. In case of auto, we expect maybe this year could be just a flat or marginal growth.