Asian Paints Flags 'Aggressive' Price Hikes As Inflation Eats Into Margins
Asian Paints Ltd. has warned that the onslaught of inflation led by higher commodity, packaging material and transport costs is likely to persist, warranting “aggressive” price hikes.
“Inflation is at unprecedented levels, we haven’t seen this kind of an inflation in material prices at least in the last 40 years,” Amit Syngle, managing director and chief executive officer of India's largest paintmaker, told investors in a post-earnings conference call on Thursday.
The company, he said, will seek to maintain its operating margin within a band of 18-20% through a mix of cost savings and calibrated product price increases to offset input cost rise. So far this financial year, the company has taken a price hike of 7% against a 21% material inflation.
“During the first half of FY22, we cautiously raised prices as the country was transitioning from the second wave," he said. "But now as demand is recovering we will take aggressive price hikes across categories over the next 2-3 months to protect our margins as raw material inflation looks to persist”.
Prices of key inputs such as crude-based monomers and titanium dioxide have been on an upswing in recent months. According to Bloomberg data, Chinese titanium dioxide prices have surged over 40% year-to-date.
That was felt in the market leader’s bottomline during the September-ended quarter. On a consolidated basis, its operating profit fell 28.5% year-on-year to Rs 904.4 crore and was down from Rs 913.6 crore in the first quarter. Ebitda margin came in at 12.7%, a multi-quarter low, and down from 16.4% in the preceding three months.
However, that's not the only problem.
Besides price instability, Syngle said, there are also supply-side disruptions like shortage of raw materials, congestion in ports and shipping lines.
Double-Digit Volume Growth
The comfort for Asian Paints came in the form of strong demand during the reporting quarter as economic activities gathered pace and the real estate segment, which was severely affected during the pandemic-hit June quarter, recovered.
“The company reported a 34% jump in domestic decorative business volume growth in Q2 led by tier 1 and tier 2 centres despite Covid-related restrictions in certain regions and a prolonged monsoon—indicative of good growth in future as well,” said Syngle. The industrial coatings business also posted “strong double-digit revenue growth" led by demand for protective coatings and uptick in the automotive sector, he said.
On the outlook, Syngle said that the company will be able to clock a "double-digit growth" in the second half of the year buoyed by a host of factors like strong consumer sentiments, festive demand, good monsoon auguring well for rural and a recovery in the real estate segment.