Paints - Dealer Check - July 2020 - ICICI Securities

The paint industry started operations from the first week of May 2020 following strict government regulations. Our dealer check suggests strong pent up demand in May 2020 across regions mainly due to rush of completion of construction works before onset of monsoon. This is also evident from the fact that plant utilisation reached ~70% on part of leading paint companies in June 2020. While tier-I cities are facing various lockdown restrictions, dealer statements suggest business activities in suburban, rural areas are rapidly heading towards normalcy. Considering social distancing norms and to bring confidence among dealers, PPE kits were provided to painters by paint companies. Dealers also guided us (the key points discussed below) that paint companies have extended significant discounts of about ~10% on cash billings in Q1FY21. However, we do not foresee any gross margin pressure as discounts are largely on the back of a sharp fall in raw material prices. We remain optimistic about a recovery in paint demand (despite a perception of paint being a discretionary spend) in coming months, with normalisation of business activities in containment zones.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Paints_DealerCheck_Jul20.pdf

Source : Equity Bulls

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