BL Research Bureau

Asian Paints, the largest paint maker in the country delivered a good performance in its recent March quarter earnings, driven by strong sales across segments. With economy fully opened (until March this year post which localised lockdowns were implemented), the pick-up in real estate and industrial demand gave a boost to the company. In Q4 FY21, it reported a revenue growth of 43 per cent to ₹6,651 crore when compared to same period last year. Despite the increase in input costs, Asian Paints reported solid earnings growth. Its profit grew 81 per cent to ₹869 crore, partially due to benefit of base effect (Q4 FY20 impacted by lockdown). However, on a sequential basis, while the revenue declined marginally by 2 per cent between March and December quarter of FY21, net profit declined by 31 per cent due to impact of higher raw material costs. Asian Paints stock at ₹ 2,560 (at market close on May 12) trades at 78 times its trailing twelve-month earnings.

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With second wave of Covid-19 raging across the country, there will be slowdown in demand in the near term. This along with the steady rise in the prices of crude oil, from which paints’ raw materials are derived, might exert pressure on the margins of the company.

Steady performance

For Asian Paints, decorative segment is the major revenue contributor, and this segment delivered a robust 48 per cent year-on-year volume growth in 4QFY21 (33 per cent in 3QFY21), aided by good demand , both in urban and rural areas. While it witnessed growth across its product categories, most of the volumes were driven by premium and luxury product range. This is mainly thanks to improving demand in real estate.

With recovery in automobile sales, a similar trend was visible in industrial paints segment as well. This segment, which contributes about 18-19 per cent of revenue for the company, delivered strong volume growth led by protective coatings and refinish segments.

International business, which represents a little over 10 per cent of revenue, registered growth of 22 per cent year-on-year.


For paint companies including Asian Paints, the benefit from low crude oil prices last year, release of pent-up demand with economy fully opened up, and festive season gave a boost to their performance. This has reflected in the earnings of paint companies which have been improving in the last three quarters.

However, with second wave of Covid-19 raging across the country and many states imposing localised restrictions, the real estate and automotive industries will face a slowdown in the short-term. This could take a toll on the company’s revenue.

Also, the rise in input costs too could dampen the business prospects in the near-term. For paint companies including Asian Paints, the raw materials costs as a percentage of sales, are at around 50 per cent. Since October last year, crude oil prices have been slowly inching up. Paint companies’ raw materials are predominantly crude oil derivatives and with crude prices rising, their margins could take a hit. From $35-$37 per barrel in October, crude oil price is around $65-68 per barrel now. The margin pressure is already visible in Asian Paints’ results. During 4QFY21, the EBITDA margin stood at 21 per cent, down from around 28 per cent in 3QFY21.

Asian Paints, being a dominant player in the market, maybe able to cushion its margin and fare better than peers by passing on the cost increase to some extent. According to the management, the company has taken 2.8 per cent hike in prices across its product for the month of April, though for the March quarter, it had not taken any price hikes.

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