The paint stocks are going into the festive season on the back of improving demand from channel partners, especially in rural regions. Given that the festival of Diwali comes much later this year, channel partners are looking at higher stock levels in October than last year. However, pre-hike stocking is back to normal, which could lead to secondary selling being stronger than primary selling. Lets see what Morgan stanley says regarding the paint industry.
Rural Demand Shows Signs of Improvement
Trends in demand across markets have been quite similar on a sequential basis; however, there have been some improvements in rural dealers’ views. The dealers have reported improved demand in rural markets, which may help in driving volumes during the upcoming festive season. On the other hand, it is also anticipated that volume growth will be somewhat similar to that of Q1.
October Could See Higher Dealer Stocking
Diwali is one such element that is going to play a vital role this year. With the festival season coming late in the year, dealers will have to boost their inventory levels in October in comparison to the last year in September. October will be a significant month for paint manufacturers as it is expected that dealers will see improvement in demand during this month.
Secondary Sales Could Provide a Better Demand Signal
Other notable developments include the normalisation of pre-hike stock building in channels. The paint manufacturers had seen stock building by the dealers prior to previous price hikes, and this stock building phenomenon has now become normal. It means that the secondary sales might have been a little bit ahead of the primary sales. This is significant since secondary sales indicate product movement from the dealers to consumers.
Price Hikes Have Largely Been Accepted
Pricing was stable across all participants in August and September. The dealers reported that the increased prices after the hikes have been largely accepted by the customers. It shows that the firms have been able to increase their prices without any significant disruption to demand from the consumer side. In the case of paint companies, it can be a critical situation.
Competition Is Also Building
The competitive environment keeps changing as JSW Dulux continues to make efforts to grab market share. On the other hand, the dealers mentioned better acceptance of Grasim’s Opus brand and repeat orders by painters. This suggests that the competition would be one of the major concerns for existing brands as new brands continue to build their market position.
October Could Set the Tone for the Festive Season
Overall, the latest dealer checks point to a relatively stable demand environment with improving rural commentary and expectations of stronger October demand. Higher festive inventory, normalised channel stocking and consumer acceptance of price hikes could support sales during the key festive period.
Apart from the above-mentioned companies, investors must keep an eye on Asian Paints, Berger Paints, and Indigo Paints as October sales and secondary demand could therefore provide a useful indication of how the industry is entering the festive season.
Conclusion:
Paint stocks are now entering the festive season with demand being stable and comments from the rural sector improving. Improved stocking by dealers in the month of October, balanced channel stocks and acceptance of price hikes by consumers can hvachaelp fuel sales momentum. The important point that needs to be monitored is whether the strong festive demand results in higher secondary sales volumes.