Asian Paints: Asian Paints needs to play the price card well to get back its colour

The results were marked by a 5.4% drop in consolidated revenues to ₹8,003 crore and a 480 basis points decline in operating margin to 15.5%. Consolidated net profit dropped 44% to ₹694 crore.

One basis point is 0.01 percentage point.

It was the third straight quarter of underperformance for the market leader in the decorative paints industry. Asian Paints’ continued weak performance can no longer be considered coincidental coming at a time when competition has intensified with the entry of new large players like Birla Opus, JSW Paints and JK Paints and Coatings.

Asian Paints’ domestic decorative business posted a 0.5% drop in volume last quarter amid weak consumer sentiment and persistent rains and floods in some parts of the country, impacting consumption. Revenue growth was also dented by price cuts taken in the base quarter, portfolio changes and increased discounts. The impact of price increases taken in the September quarter is expected to flow through in the second half of the fiscal.

Agencies

The international business registered a marginal drop in value and constant currency revenue growth of 8.7% even as market conditions in Ethiopia and Bangladesh were challenging.During the quarter, the company took an impairment loss of ₹199.8 crore on its investments in White Teak and Weatherseal. This comes within two years of its investments in these home decor brands wherein Asian Paints took a 49% stake in White Teak for ₹180 crore and a 51% stake in Weatherseal for ₹19 crore in 2022.The Asian Paints stock has lost 10% in the past one year – even as the benchmark Nifty50 index has gained 25%. The latest quarterly performance is expected to trigger further sell-off in the stock.

Asian Paints is battling several challenges such as intensifying competition, declining pricing power and subdued consumer sentiment. The company will have to resort to giving higher dealer margins and price discounts on its products and launch innovative products and services besides buying growth through strategic acquisitions in a competitive market.

Asian Paints’ long-term investors, who may be unsettled seeing the current under-performance after years of the secular growth trajectory of the company, may well brace themselves for near-term pain for the company before the action settles down in the decorative paints industry over the next few years.