Pent-up demand prompts Berger to expand manufacturing capacity

A pent-up demand – that’s pushing up volumes — is prompting the country’s second largest paints maker in the decorative segment, Berger Paints, to accelerate and expand manufacturing capacity.

Berger is in the process of setting up a ~700-crore plant in Uttar Pradesh.

The plant’s commissioning is now being brought forward on account of high capacity utilisation at its existing facilities.

Berger Paints managing director (MD) and chief executive officer (CEO) Abhijit Roy said, “Originally, we had planned to commission the plant in April next year, but we will now try and start it in December 2021.”

Roy added that the kind of demand the company was seeing was not anticipated. “The volume growth in Q3 was almost 32 per cent; obviously our factories are getting a bit stretched and we are operating at very high levels of efficiency at this stage. Therefore, we thought of getting quickly into the manufacturing and expansion phase,” he said.

The idea is to cover for the growth expected next year. “Next year, we are expecting a solid and robust growth again,” he said.

The third quarter for Berger has been one of its best quarterly performances. Revenues were up 25 per cent on a year-on-year (YOY) basis; EBITDA saw a growth of 40 per cent and net profit grew 51 per cent.

Roy said, typically, April and October are the strongest months for paint companies. But last April was a washout due to the lockdown, following the Covid-19 pandemic.

“The pent-up demand that was there in Q1 started coming back in Q2 and then more strongly in Q3,” he said.

The rural sector was a major contributor to demand. Also, migration from the unorganised sector to the organised one boosted sales.

But Roy believes that Q4 will also be strong. “Growth rate in Q4 will be higher than what we registered in Q3; Q1 (next fiscal) will be higher than Q4 (this fiscal),” he said. Berger is also setting up a plant in West Bengal, which would be its third unit in the state.

A 20-acre plot in Panagarh has been allocated at an industrial park meant for building materials. The company will now be applying for requisite permissions after which construction will start. The plant will be operational a year later (2022-23). In the past few years, the paints industry has seen new entrants with deep pockets like JSW, and more recently, Grasim.

Roy, however, said the company would focus on consumers and customers. “Ultimately, if we are able to service them at the right price point, then we will win the battle,” he said. He also pointed out that players with deep pockets had entered the segment in the past, too, but it had not impacted Berger’s market share.

On price hike, Roy said, raw materials had seen an increase in rates and Berger raised prices in the industrial segment by 5-9 per cent.

For the decorative segment, however, the company will increase prices only if raw material rates increase.