When lockdown was lifted in orange and green zones which accounted for 3/4th of the country it was anticipated that decorative paints industry would be the fastest to recover from the slump as its mainly dependent upon repainting demand and less on institutional demand. Initial demand trend too supported this view and some of the dealers too opined that paints industry will see a sharp and fast recovery in demand post lockdown. However, as the days progressed, things have started changing dramatically as the initial pent up demand started withering out.
Major paint consuming centre still in lockdown
Most of the major cities like Mumbai, Delhi, Chennai and Ahmedabad are still under lockdown with limited relaxation as they are coming under the red zones. Even in most of the orange zones, shops are allowed to open for three days in a week only. Since these cities are the major centres for demand, inactivity in these regions has had an impact on the paints’ demand. Further, other major cities that are opened too are affected due to reverse migration of migrant labour post lockdown. Major cities are heavily dependent on migrant labour from other states for repainting job while the tier2 and 3 cities are dependent on local labour.
Change in consumption pattern
As the demand has come majorly from tier2 & 3 cities and towns, during the post lockdown period paint manufacturers have seen major shift in consumption towards lower end products including economic emulsion, distemper and putty. Premium paint products are consumed more in major cities and their continued lockdown has impacted demand for these products.
Shift started in the previous quarter itself
Interestingly, the industry witnessed a shift towards bottom of the pyramid products like Distemper, putty in FY20. For example, Kansai Nerolac’s lower end emulsion category, that is, ‘Soldier’ brand, witnessed strong 18% YoY growth. Launch of lower end products in the semi urban and rural markets helped it to gain market share from unorganised/regional players.
Though the paint companies saw brisk buying in the first 8-10 days after the lockdown was lifted, it slowed down considerably thereafter as the initial pent up demand subsided. With Monsoon having already set its foot in the Southern parts of the country and is moving northwards, one can expect a near wash out in demand in the first half for the paint companies.
Demand stronger in rural India
Meanwhile some of the dealers in the rural regions have managed to liquidate their inventory prior to lockdown. As the government’s stimulus package is mainly rural oriented Asian Paints and Berger Paints both have increased focus on rural India with the push of lower end products (economic emulsion, distemper and putty).
Emphasis is on recovery
However, some dealers are complaining about non-availability of some products at the paint manufacturers’ depots. Also, most of the paint makers have given extended credit to the dealers during the lockdown. However, in post-lockdown period paint manufacturers’ main focus seems to be on recovery of dues and ensuring that accounts don’t turn bad.
TiO2 imports give mixed signals
Titanium Dioxide or TiO2 imports data for the month of April (when the whole country was in lockdown for the major part of the month) gives us a mixed signals. India imported 23,063 tonnes of TiO2 in April which is 14.8% less on year on year basis and 6.8% less on year to date basis. Year to date fall ratio is comparatively less may be because of excess purchases by paints companies in the initial months of the year fearing supply disruption due to Coronavirus breakout. Remember, part of our TiO2 imports are from China and in April nearly 48% of the imports were from that country.
Interestingly, imports of TiO2 in April by the market leader, Asian Paints has gone up by 6.8% and 30.3%, YoY and YTD basis, respectively while imports by other major paint manufacturers like Kansai Nerolac, Berger Paints and Akzo Nobel have seen a fall during the month. Fortunately for the paint manufacturers TiO2 prices remained benign during the month.
General view among the dealers is that recovery in demand may happen only after September, that is, after the Monsoon is over. That also coincides with the festive season which is one of the busiest seasons (summer being the other busiest season for the industry). If the festivals and marriages become a low key affair, demand recovery may be slower than expected. Dealers also expect demand for exterior paints to recover much faster than other products.