HM Bharuka, vice chairman and managing director, Kansai Nerolac Paints, is been instrumental in building and positioning the company as a leading player in the Indian paints industry. Appointed as the first non-Japanese director on the board of Kansai Paints Co, Japan, Bharuka is a qualified AICWA from the Institute of Cost and Works Accountants of India and has done B.Com from the Mumbai University.

With the liquidity and NBFC crisis, Bharuka, chairman of The Indian Paint Association (Western Region), expects some slowdown in automotive paint segment. Bharuka also said rupee volatility has impacted margins of the company.

Edited excerpts:

Q: 11 percent revenue growth. If you could break it up in terms of volume and value, what does this quarter do to your annual guidance of 12-14 percent volume growth?

A: I think this quarter, though of course volume growth is slightly lower than the value growth, but this quarter there was expectation that growth would be lower in decorative for simple reason that festive season is one month postponed compared to the previous year. Also, there was extended monsoon, which contributed to a lower growth. So, I think this quarter was expected that it would be slightly lower compared to the previous quarter.

However, we expect third quarter revenue growth in case of decorative to be far better. However, industrial, we have definitely seen a slowdown. Overall, we still expect double digit growth to continue in coming two quarters.

Q: What exactly was the volume growth in this quarter, both industrial and decorative segment?

A: Both put together, I think about 9-9.5 percent or so.

Q: What has been the total quantum of price hikes that you have taken already in both your segments. Also from your press release, we understand that you are in talks with clients for a further price hike in the industrial segment. So if you could give us a sense of what is on the cards?

A: In case of decorative, we have taken price hike of about 2 percent in the first six months and we have increased with effect from October 1 and another 2.4 percent in case of decorative. For industrial, it's client based, contract based and customer-to-customer. So, we cannot disclose. However, we have had a price increase in case of industrial also and there is a further increase, which is expected as the cost increases have been very high and which you can see from a drop in the margin in case of overall margin drop of about 400 basis point. So certainly, we need to get more price hike from our industrial customers, which we are in the process.

Q: Also, the latest round of tax changes in the GST meet you have listed as one of the reasons which have negatively impacted earnings this time around. How much longer do you expect the impact to linger on?

A: That was only in the first month as GST rate was expected to come down. So, dealer did a destocking. That was only for one month and we do not expect any negative effect because of that. So, we expect it to have a good positive effect.

Q: Whatever little of this quarter has happened, have you seen any further damage in input prices and how has demand shaped up in Q3 so far?

A: As far as input prices are concerned, maybe base raw material prices perhaps have reached the peak.

But the problem is of the rupee deprecation, it is very volatile and even crude oil as of now is very volatile. So, we don’t know how the prices are going to behave.

We hope that rupee is stabilising around say 72-73 per dollar, but no one has any idea as of that. As far as demand is concerned, we expect decorative demand to be definitely good. But on the auto front or on the industrial front, definitely, we do see some slowdown and with the financial crisis, which is there right now in the market. With the liquidity crisis and NBFC problem, we expect some slowdown in case of auto.

Q: If you could breakup your market share right now in both automotive segment as well in decorative segment. Have you lost market share in this quarter?

A: No, we have not lost market share anywhere. Both decorative and auto, we have maintained our market share. We have no idea as of market growth, but we feel market growth would be similar. I don’t think we have lost market share anywhere.

Q: What kind of margin band are you working with for the remainder of this year? We have seen a 400 basis points decline on your EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin, all of that led by gross margin decline, so what is the margin band that you are working with this year? You have already spoken about double digit volume growth.

A:

Certainly, we would like to improve our margin. But as I said, the rupee volatility and the crude oil volatility is not in our control.

So, we have no idea how the raw material prices are going to behave and we can’t go to customer every month for price increase. So we are in talk with our customer to get the price increase. Obviously, we have to increase and maintain our margin, but as I have been saying earlier that if one quarter or two quarters we don’t get margin, it doesn’t mean that is the end of the story. Paint industry is the high growth area and we expect it to continue like this.