India's paint makers may be entering one of their biggest pricing tests in years as repeated hikes linked to crude-based inflation begin reaching consumers across the country.
Paint companies have raised prices in phases over recent months after geopolitical tensions in the Middle East disrupted supply chains and pushed up the cost of petrochemical-linked raw materials. But commentary from Indigo Paints, Berger Paints and Grasim Industries now suggests the industry remains uncertain about how strongly consumers and contractors will absorb the increases over the coming quarters.
The sector is attempting to balance pricing actions with market share growth at a time when competition remains high and input costs continue to rise. Companies indicated that while price hikes were necessary to offset inflation, the effect on demand may become clearer only after higher prices fully flow through to the market.
Grasim Industries said the paints sector was entering a phase where the "demand elasticity curve will be fully tested".
The company said the industry had been forced to implement multiple price increases because of an unprecedented rise in raw material costs linked to crude derivatives and currency depreciation. It added that the impact on consumers and contractors would likely become visible during the second half of the June quarter and through the September quarter.
"We understand the industry has never seen such high inflation that has forced the entire industry to take multiple price hikes back to back," Grasim Industries management said during its earnings call.
Indigo Paints also signalled that companies may not be able to completely protect margins even after sector-wide price hikes.
"We are in a phase, where growing and gaining market share is the top priority," Indigo Paints management said during the company's earnings call. "To pursue this with the urgency it warrants, we are prepared to accept some moderation in our gross margins if required."
The company said prices of key raw materials rose 50%-100% in March after supply disruptions linked to the Iran conflict, resulting in industry-wide price increases of around 12% across the overall product basket.
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Berger Paints said the pace and scale of inflation had forced companies to accelerate price hikes faster than in previous cost cycles.
"This time because of the suddenness and the quantum of increase that have happened, we were left with no choice but to increase the prices very rapidly," Berger Paints Managing Director and CEO Abhijit Roy said during the earnings call.
The company said raw material inflation currently stands at 20%-23%, although recent price increases and internal cost measures are expected to offset a significant portion of the impact. Berger Paints also said competition in the sector had stabilised over recent months even as pricing gaps in the market narrowed.
Grasim Industries said it continues to monitor secondary sales trends and price elasticity on a weekly basis after implementing multiple phases of price hikes during the June quarter.
The company said it would continue consumer-focused promotional programmes despite inflationary pressure while remaining focused on expanding market share.
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