Crude oil surge hits paint industry: Berger Paints CEO explains price hikes and rising raw material costs

Crude oil surge hits paint industry: Indian stock markets traded lower on Monday, March 9, tracking a global sell-off driven by soaring oil prices, escalating geopolitical tensions in the Middle East, and a sharp decline in the rupee.

While the stock market is bleeding red as crude oil prices surge amid West Asia geopolitical tensions, the paint industry is bracing for higher input costs. In an exclusive conversation, Abhijit Roy, MD & CEO of Berger Paints India, explains how rising crude impacts raw material costs, margins, and pricing strategy. He also shared whether paint companies will pass on costs to consumers and the outlook for demand and growth.

Abhijit Roy said the company has faced similar crude price cycles earlier, even when prices were higher than current levels.

He explained that paint companies usually maintain 30-45 days of finished goods inventory. In decorative paints, inventory levels are higher because products are stocked before being sold, while industrial paints are mostly made-to-order, so inventory is lower.

Since around 82 per cent of Berger Paints India’s business comes from decorative paints, the company currently has over a month of finished goods inventory produced at older prices.

The company holds about 30 days of raw material inventory, also purchased at earlier prices. As a result, for roughly 30-35 days the cost impact should remain limited, though higher prices may start affecting some industrial products sooner.

Roy added that raw material prices have already increased, and the company will eventually need to raise product prices. However, given the current volatility, the company plans to wait for some stability before taking a pricing decision, after which the increased costs will likely be passed on to customers.

Can market absorb paint price hikes amid intense competition?

Will Berger Paints take a margin hit?

Abhijit Roy noted that the paint industry has generally been responsible when it comes to pricing, and despite rising competition, established players still dominate the market.

He said companies are likely to pass on most of the cost increase through price hikes, though there could be minor adjustments.

In the industrial paints segment, price revisions may take slightly longer as they require negotiations with OEMs, but discussions have already begun, and the increases are expected to be implemented soon, he added on behalf of Berger Paints India.

Crude Oil Exposure: How much of Berger Paints’ raw material costs depends on oil?

Abhijit Roy stated that around 30-35 per cent of raw material costs are exposed to crude oil. In water-based paints, the exposure is lower since the main oil-linked input is the monomer or emulsions used in wall coatings.

He added that the price increase has already occurred, but existing stock can help the company manage the immediate impact. For solvent-based paints—including industrial and decorative enamel paints- the effect is more direct and higher, making price hikes inevitable in these segments.

Timeline for Price hikes and potential impact on Q4 volume growth

Volume growth depends on demand conditions. Inflation could impact demand slightly. But we are still hopeful of achieving strong single-digit to double-digit volume growth.

Value growth, however, will likely be lower single-digit to mid single-digit.

The timing of price increases will depend on how the situation evolves. Prices are changing rapidly. Some raw materials have gone up sharply, while others haven’t. We prefer to wait for some stability before increasing prices because we cannot keep changing prices every five or seven days.

So we will wait for a while and then take a price increase that neutralises most of the raw material cost increases, said Abhijit Roy.

Could rising oil prices and geopolitical tensions affect paint demand and volumes?

Abhijit Roy said it’s too early to predict the impact, but historically, cyclical oil price rises have had only a minor effect on demand.

He added that volume growth might dip slightly, for example, from 9-10 per cent to around 8 per cent, but with higher prices, overall value growth is expected to improve.