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Paint majors find support from investors
FE INVESTOR BUREAU
NEW DELHI, Dec 29: The paint industry appears to be regaining its colour. With the outlook for the industry turning rosy, paint majors have turned bullish on the bourses. The bullish sentiment is buoyed by the demand for automotive paints and coating, which is expected to increase three-fold in the next couple of years.For instance, the scrip of Asian Paints has moved up from Rs 265 on November 25 to cross the Rs 300-mark on December 23. However, the scrip witnessed a minor correction on December 24 when it dropped to Rs 295.75 and further recovered on Friday to close at Rs 299.25. The appreciation in price is accompanied by a sudden spurt in volumes. Another prominent player, Berger Paints, has moved up from Rs 61.25 on November 11 to Rs 86 on December 26. This translates into a gain of nearly 40 per cent. Although the price rise at the ICI counter is not much, there has been a substantial jump in volumes; from a daily average of 200-500 to 1.7-1.81 lakh shares. Goodlass Narolac has also moved up from
Rs 135.25 on December 12 to Rs 167 level on December 24. However, scrips like Sharlimar Paints and Rajdoot Paints have been on the decline despite the uptrend in other paint scrips. Both the scrips are also not frequently traded. The decorative paint segment is currently growing at 12-16 per cent, while industrial paint is growing at a rate of 12 per cent. Although decorative paints account for nearly 70 per cent of the industry's turnover, the demand for industrial paints is likely to grow at faster rate in the coming years. The share of industrial paints will rise to 50 per cent from the present 30 per cent. According to an analyst, ``With more and more foreign car manufacturers setting shop in India, demand for automotive paints is likely to go up. Even the already established car manufacturers are expanding capacities or introducing newer and newer models.'' In the decorative paints segment, replacement demand accounts for 70 per cent, while original demand is mere 30 per cent. According to a dealer
with a leading Delhi broker, ``With the recent pay revision, there is likely to be a sudden spurt in demand for paints. This demand is likely to materialise in the second-quarter of 1998, as most people go for renovation and paint at that time.'' The recent rupee depreciation is also unlikely to have much impact on the paint manufacturers' bottomline although some of them are using imported raw materials. Despite the depreciation in the value of the rupee, the imported raw materials are still cheaper than domestically ones. However, depreciation will lead to 1-2 per cent squeeze in profit margins.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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