Why was Asian Paints Q3 topline growth weak? CEO explains how price cuts hurt

Asian Paints is seeing customers upgrading to high-end waterproofing products and high-end technological solutions

Price cuts of about 1.3 percent limited Asian Paints revenue growth to a mid-single digit in the third quarter of the current financial year despite a hefty rise in sales volumes, managing director and chief executive officer Amit Syngle has said. Asian Paints revenue grew 5.4 percent on-year, while the sales volumes were up 12 percent.

Asian Paints closed 1.4 percent lower at Rs 3,250 on January 17 amid a market carnage that saw the Nifty slump 2 percent, its biggest single day loss in over 19 months. The stock has risen about 3 percent since October against a 10 percent jump in the benchmark index.

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The gap between value and volume growth was around 7 percent in the December quarter and it is expected to continue for some time further, Syngle said an earnings call on January 17.

The gap persists because the luxury segment is still small in India compared to the premium and economy segments, he said. Yet, Asian Paints is seeing customers upgrading to high-end waterproofing products and technological solutions, the CEO said.

The paints major is seeing some signs of recovery in tier 3 and 4 cities, which it refers to as rural markets. These cities have seen a surge in economy range products.

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The company expects a deflation of about 2 percent in raw material costs in the near term as consumption slows down in the US and China, which is expected to reduce commodity prices in the country, Syngle said.

Asian Paints raised prices in its luxury and premium segments to counter the downtrading in the economy segment. As inflation eases, small and regional players start entering the economy segment and gain market share from the big listed players.

Syngle said demand remains intact from the B2B side also, where Asian Paints is a part of marquee projects like the Ayodhya, new Parliament complex, metro, and the works of National Highway Authority of India. However, the company won't be able to make margins to the extent which it made through its retail business, Syngle said.

Asian Paints reported a consolidated net profit of Rs 1,475.16 crore for the October-December quarter, up 34.4 percent year-on-year. The EBITDA margin stood at 22.6 percent against 18.7 percent in the year-ago period.