The stock of Asian Paints, one of the top paint makers in the country, fell 5 per cent on Tuesday following its weaker than expected results for the September 2018 quarter. Similar to the experience of other paint makers, including Kansai Nerolac, the rise in raw material (crude derivatives) costs weighed on the company’s profits.

Higher input costs

Raw material costs as a percentage of sales increased sharply to 56 per cent in the September quarter, compared with 47 per cent in the same quarter last year. This increase was not only because of higher crude oil prices but also due to weaker rupee.

To negate the input cost pressure, Asian Paints increased the selling price in decorative segments. However, it didn’t helpsave the profit margin. The company saw operating profit margin shrink by two percentage points to 18 per cent in in the September quarter. Kansai Nerolac had reported a decline of 4 percentage points in operating margin to 16 per cent.

Decorative paints do well

Asian Paints registered a double-digit volume growth in its core segment – decorative paints, despite a price increase of 3.4 per cent. Decorative segment contributes nearly 75 per cent of the company’s revenue. On the industrial front, automotive coatings, protective and powder coatings segment too did well.

Sales growth was reported at 9 per cent, y-o-y. However, increased price pressure pulled the profits down by 15 per cent.

The coming quarters are likely to be challenging for Asian paints. The management expects higher crude prices and depreciating rupee to continue to weigh on performance. Uncertainties arising from a busy election period and less than estimated rainfall in the monsoon season, may add to the pressure.

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