Asian Paints Q3 Results: Profit Falls Missing Estimates, Margin Contracts As Input Inflation Weighs

Asian Paints Ltd.’s quarterly profit fell, missing estimates, and margin contracted as rising raw input costs offset benefits from price hikes.

Net profit of India’s largest paintmaker dropped 18% over the previous year to Rs 1,015.7 crore in the three months through December, it said in an exchange filing. That compares with the Rs 1,138.9-crore consensus estimate of analysts tracked by Bloomberg.

Q3 FY22 Highlights (YoY)

• Revenue rose 26% to Rs 8,527.2 crore, against the Rs 8,418.4-crore forecast.

• Operating profit came in at Rs 1,542.3 crore against Rs 1,787.9 crore a year ago and Rs 1,650.4-crore estimate.

• Margin contracted to 18% from 26.3%, against the projected 19.6%.

“The steep and unprecedented inflationary trend in raw material prices continued to impact gross margins across businesses this quarter,” said Amit Syngle, managing director and chief executive officer at Asian Paints. Sequentially, however, the company has been able to mitigate the impact of inflation on margins with substantial price hikes in November and December, he said.

Margin improved from 12.7% in the second quarter.

Other Highlights (YoY)

• Employee cost was up 17.4%.

• Other expenditure rose 28.5%.

• Other income was down 26.7%.

• Cost of materials consumed rose 41.3%.

Segment Snapshot

• The paints business grew 25.4% to Rs 8,319.4 crore in Q3.

• The domestic decorative business registered an 18% volume growth on a strong base of 33% in the previous year, the company said.

• The tier 1 and tier 2 centres across regions led volume growth during the quarter. “Tier 3 markets are growing but at a slower pace,” Syngle said.

• The industrial coatings business also “registered a robust double-digit revenue growth”, led by protective coatings segment.

• “Within industries, the automotive coatings business was impacted by the challenges facing the automotive sector,” the company said.

• The home improvement business continued its “streak of healthy growth registering 36.4% revenue growth during the reported quarter along with a steady expansion trajectory”.

• Its international business registered 9% value growth, the company said. “It was impacted by sluggish market conditions in most of the units in the Middle East and specific challenges like civil unrest in Ethiopia and forex crisis in Sri Lanka.”

State-level Covid-19 restrictions have slowed demand in January. But, the company doesn’t expect volume to decline despite the price hikes. “Only the economy range may get impacted. Since 60-70% cost is towards labour, even if there is a larger increase in paint cost, it might not affect the cost of painting materially,” Syngle told investors in a post-earnings call.

Shares of Asian Paints were trading 1.25% higher after the results were announced, compared with a 1.48% fall in the S&P BSE Sensex.