Akzo Nobel India Mulls Price Hike In April

Akzo Nobel India Ltd., one of the top four paintmakers in the country, is mulling price hikes in April because of rising costs

Like last year, the maker of Dulux paints will take the lead among paintmakers to hike prices marginally by 1% across select categories in April.

"The commodity price increases are still not behind us", Akzo Nobel India Managing Director Rajiv Rajgopal told BQ Prime. "Though oil prices have peaked, it seems temporary. We continue to incur about 1-2% in extra costs due to inflation, and we will pass it on to offset pressure on margins."

Citing channel checks in Chennai, ICICI Securities said on Tuesday that Akzo has taken a marginal price hike, while others have not yet raised prices.

In the October-December quarter, Akzo Nobel India was the only company other than Asian Paints to report a year-on-year expansion in margins led by effective cost optimisation. Operating margins were up 49 basis points to 10.7% in Q3 FY23 over the corresponding quarter of the previous year.

Even on a three-year basis, it saw the least contraction in margins with a 148 basis point decline, while peers saw declines in the range of 329 to 750 basis points during the same period, according to Edelweiss Securities.

Crude oil prices have remained volatile since the start of the Russian invasion of Ukraine in February last year. By March 2022, the crude oil price had hit a 14-year high of $140 a barrel, only to ease to a low of $75 a barrel within a year.

Most recently, crude oil prices slipped below $72 a barrel amid turmoil in the banking sector, exacerbating a downward trend.

As a result, crude derivatives such as monomers and titanium dioxide, which are key raw materials for the paint industry and collectively account for more than half of the total expenditure, have become cheaper.

"But we are all rejoicing over two to three days of data. There is also currency volatility and several global factors that are playing out, and anything can spark the prices tomorrow," Rajgopal said. "We are living in an uncertain world, and that's the bigger issue ... so we decided to take the price hike now because the more we delay any action, the higher the magnitude of the price increase will be."

The company is also working on marketing strategies to ensure that it is able to mitigate the price increase, he said.  Akzo is likely to see a "marginal" rise in the operating margins in the current quarter, he said.

However, Rajagopal said, the good thing is that demand is picking up, though it will take some more time for it to pick up materially.

Demand for paints is not very price elastic, so companies hike prices to sustain margins, according to Abneesh Roy, executive director at Nuvama Institutional Equities. "Despite price hikes taken by the paints industry over the past few quarters to support margins, they were able to sustain stable demand; hence, we expect improved demand post a muted third quarter."