MUMBAI: Channel checks point to consumers putting off painting their premises, a new pain point that the paint industry may have to confront. Stocks of major paint companies such as Asian Paints Ltd and Berger Paints Ltd were down 4% and 2% respectively in Thursday’s trade.
Volumes have declined considerably. A check by B&K Securities shows that after an initial spurt, offtake in green zones has weakened. Also, given the scare of the pandemic and social distancing being the new normal, consumers will probably remain wary of allowing painters into homes for a while.
While there was hope that with the resumption in construction activity, painting of exteriors may take off, the arrival of monsoon will have a dampening effect on this.
Analysts are now pinning their hope for recovery in the second half of fiscal, with a slew of festivals scheduled.
This, though, will hinge on pick-up in economic activity. With most events turning into low-key affairs, festival demand may be subdued.
Moreover, consumer discretionary spend could be hit given income loss and job losses across the spectrum.
“Lower-income group of people also account for strong demand during the festival season, so with their incomes impacted, they are not likely to take up painting affecting the overall demand. FY21 will be a challenging year for paint companies” said Dhaval Dama, director, research, FMCG, Equirus Securities.
In early May, Goldman Sachs, in a note on Asian Paints, said it saw significant risks to sales growth as it expects consumers to down-trade and, thus, the re-painting cycle lengthening given the macro-economic slowdown.
“…In FY22, even if there is a pent-up demand recovery, the numbers are likely to see a downward revision from what was built, pre-covid. Considering these factors, there is not much headroom for paint companies given the valuations,” said Dama.
Asian Paints and Berger Paints quote at valuations of about 60 and 75 times 12-month trailing earnings. This makes the valuations appear to be on the higher side.