Crude prices have softened of late and paint companies feature among the top benefactors owing to lower input costs.
Abhijit Roy, MD, Berger Paints believes the reduction in crude prices will aid gross margins, however adds that most of the company's raw materials will have no impact from the crude fall.
Roy rules out any price hikes in the short-term given softness in input prices. Although there is no material pick-up in volumes so far, the paint company is confident of achieving margins in the range of 11-12 percent on the back of their market share having improved to current 19-20 percent, he says in an interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh.
While the automotive segment is seeing signs of uptick, a revival in the infrastructure space will abet growth in industrial paint segment, he adds.
Below is the verbatim transcript of the interview:
Q: How important is the cost of raw material in your end product and are you seeing a significant fall, should we expect higher gross margins?
A: Yes, crude always plays an important role as far as raw material prices are concerned. There is some softening in terms of prices, so there will be some uptick in the gross margin.
Q: Can you quantify for the moment assuming USD 99 per bbl; I do not know what your products would be and whether titanium dioxide gets impacted by all that but what is the percentage gain you may expect in margins?
A: Titanium Dioxide does not get impacted by the crude prices. The prices of mineral turpentine oil (MTO) gets affected a bit which is used for a solvent based products – that's where we get little benefit otherwise most of the raw materials will have not much of an impact.
Q: So will you be able to clock operating margins at 11-12 percent this year?
A: Yes, I think so that should be possible.
Q: What is the percentage of raw material cost that comes from crude derivatives?
A: We have not worked out because with crude there are many other products, which are associated with crude, so those prices are likely to soften now because we have to renegotiate those prices with the vendors.
Q: Apart from the lower crude prices, you have also been taking a lot of price hikes in the quarter gone by. In the month of June, you took 2 percent price hike, so that has aided your margins as well. Any more price hikes that you will be able to execute in the months to come?
A: Immediately we are not looking at it but if prices of raw materials go up then we will have to pass on the price rise to the customers.
Q: What was the cost of raw material to your total expenses?
A: On an average year, it varies from 57 percent to 60 percent approximately.
Berger Paints stock price
On September 11, 2014, at 11:14 hrs Berger Paints India was quoting at Rs 356.20, up Rs 4.55, or 1.29 percent. The 52-week high of the share was Rs 374.70 and the 52-week low was Rs 200.55.
The company's trailing 12-month (TTM) EPS was at Rs 6.97 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 51.1. The latest book value of the company is Rs 32.67 per share. At current value, the price-to-book value of the company is 10.90.
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