Shares of Asian Paints were slipping on Thursday after the paints and home improvements firm posted sluggish topline growth for the third quarter due to price pressures.
What Happened: Asian Paints faced revenue growth constraints in the third quarter and was limited to mid-single digit growth, primarily due to price cuts of approximately 1.3%, Amit Syngle, managing director and CEO, said in an earnings call.
Despite an uptick in sales volumes, revenue grew by 5.4% year-on-year, with sales volumes witnessing a 12% uptick.
For the October-December quarter, Asian Paints reported a consolidated net profit of ₹1,475.16 crore, reflecting a robust 34.4% year-on-year increase. The EBITDA margin stood at 22.6%, up from 18.7% a year ago.
Price Pinch: Syngle highlighted a 7% gap between value and volume growth in the December quarter, a trend expected to persist for some time. This divergence is attributed to the relatively small luxury segment in India compared to the premium and economy segments. Despite this, Asian Paints said it has observed a trend of customers upgrading to high-end waterproofing products and embracing technological solutions.
The CEO emphasised that the company is witnessing signs of recovery in tier 3 and 4 cities, referred to as rural markets, with an increased demand for economy-range products in these regions.
In terms of raw material costs, Asian Paints anticipates a deflation of about 2% in the near term due to slowed consumption in the US and China, leading to a reduction in commodity prices in India. To counter downtrading in the economy segment, the company raised prices in its luxury and premium segments. As inflation eases, smaller regional players are expected to enter the economy segment, gaining market share from larger listed players.
While demand remains robust on the business-to-business (B2B) side, where Asian Paints is involved in significant projects, including those in Ayodhya, the new Parliament complex, metro projects and works of the National Highway Authority of India, the company may not achieve margins comparable to its retail business.
Price Action: Asian Paints’ share price was down 3.4% at ₹3,132.20 near the start of trade on Thursday.
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