Crude oil prices, currently below $80 per barrel, impact around 40% of the raw material costs for paint companies as the cost of binders – a key input material – is linked to the prices of crude oil.
Crude oil prices are seen remaining weak in the near term amid concerns of demand weakening globally. With prices of another key raw material – titanium dioxide – also having seen a sharp correction from its peak levels, profitability is seen improving in the current quarter, but to a limited extent.
This reflected in the shares of major paint companies, which ended 1-4% higher on Friday, even as the benchmarks Nifty 50 and Sensex ended marginally in the red.
“Historically we have seen that paint companies do not see a drastically different margin profile, because when raw material prices correct, they pass on most of it to the customers,” said George Thomas, fund manager for equities at Quantum Mutual Fund, who sees profitability improving by around 100 basis points.
Asian Paints, has in fact, cut product prices by 1% earlier this week, with other players following suit.
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