News Analysis

Asian Paints: Volumes improve, but increase in input costs take the sheen off earnings

Bavadharini KS | Updated on January 22, 2019 Published on January 22, 2019

The December quarter performance of Asian Paints, one of the largest paint makers in the industry, outpaced industry estimates. Strong volume growth in the decorative and industrial coatings segment led to a robust growth in revenues. The company’s revenue grew 24 per cent y-o-y to ₹5,294 crore in the latest December quarter. However, the operating margins remained under pressure due to high raw materials cost. The net profit grew 14 per cent y-o-y to ₹647 crore in the latest quarter over the same period last year.

Growth in revenue

The core segment – decorative – registered a high double-digit volume growth across regions. This segment contributes to nearly 75 per cent of the company’s revenue.

Since the price of crude increased significantly during the December quarter, the company’s raw material (a form of crude derivative) cost also went up. To offset the input cost pressure, the company increased its prices by 2.35 per cent in October and 1.75 per cent in December. However, the burden of price increase was mitigated to some extent as the company was able to pass on the benefits of the GST (Goods and Service Tax) rate reduction (from 28 per cent to 18 per cent) to its customers.

In the industrial paints segment, automotive coatings witnessed good growth in the general industrial category but the auto OEM segment saw a subdued growth on the back of weakness in the underlying sector. Other categories of industrial paints – powder and protective coatings – though registered good growth. Raw material cost as a percentage of sales came down to 50 per cent in the December quarter, compared to 56 per cent in the previous September quarter. Though crude prices have offered some respite in the last few months, raw material costs are still elevated. Therefore, the price increases by the company have not been enough to offset the rise in input costs entirely.

The operating margin was down by 1 percentage point to 20 per cent in the December quarter compared to the same period last year.

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