Companies

Faded performance by Asian Paints

Bavadharini KS BL Research Bureau | Updated on May 09, 2019 Published on May 09, 2019

With significant increase in crude prices, especially since December 2018, the company’s raw material (which is a form of crude derivatives) cost increased sharply

Shares of Asian Paints, one of the largest paint-makers in the industry, fell nearly 2 per cent on Thursday due to disappointing March quarter results. The company’s net profit declined 2 per cent to ₹487 crore compared to the corresponding quarter the previous year, though revenue growth registered a healthy 12 per cent.

High input costs and volatility in rupee made operating margin contract by 2 percentage points to about 16 per cent.

Cost pressure continues

The company’s raw material cost as a percentage of sales has increased to 53 per cent in March quarter from 51 per cent in the previous quarter of last year. With significant increase in crude prices, especially since December 2018, the company’s raw material (which is a form of crude derivatives) cost increased sharply. To offset the input cost pressure, the company has taken various price hikes through FY19 — the latest being 1.7-per cent price hike in the month of December 2018. But the price increases by the company have not been enough to offset the rise in input costs entirely.

Paint segment

Though Asian Paints reported a double-digit volume growth in its core paint segment — decorative business, the contribution of low-end products such as putty appears to have been higher in this segment, depressing realisations.

In the industrial paints segment, automotive coatings, including powder and protective coating, witnessed good growth. However, the auto OEM segment saw a subdued growth on the back of slowdown in the underlying sector.

Given that there is a consumption slowdown in the industry, the demand for products such as paints could be subdued going ahead, if there is no revival. In addition, volatility in crude prices and further depreciation in the Indian rupee could mount pressure on input costs of the company.

With lack of demand, price hikes to protect margins would be difficult.

Published on May 09, 2019
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