Asian Paints To Decide On Price Cuts After Assessing Geopolitical Risks, Says CEO

India's largest paint maker does not see any inflation risk as of yet but is closely monitoring oil prices amid the ongoing geopolitical tension.

"We expect the softer raw material price trend witnessed in the first nine months to persist in the fourth quarter," said Amit Syngle, managing director and chief executive officer of Asian Paints Ltd. in a post-earnings briefing. "However, we need to remain vigilant of the geopolitical developments and their potential fallouts."

Raw material consumption in large developed markets like the U.S. and China remains weak, and hence the deflationary trend in key inputs is likely to continue despite the prevailing geopolitical headwinds, Syngle said.

The company will look to take some more price cuts if the current trend persists, which should help counter downtrading and boost volumes, he said.

A strong festive season demand, driven by a pick-up in Tier 3 and Tier 4 markets, resulted in 12% year-on-year growth in volumes in the decorative paints business during the third quarter. However, the company saw some relative moderation in demand towards December, according to Syngle.

Asian Paints' volume growth sustained the four-year trajectory at 15%, its investor presentation showed.

Syngle expects the volume growth momentum to be sustained over the next two quarters as early signs of recovery are visible in rural markets.

"A satisfactory monsoon coupled with an uptick in government spending in an election year and moderating inflation would strengthen the rural economy."

This should further help Asian Paints deliver high single-digit revenue growth for the next 4–5 quarters, Syngle said. Yet, value growth will continue to lag volume growth by 3–4%.

A deterioration in the mix in favour of economy products and a 1.3% price cut led to lower growth in value terms in the October–December quarter.

In Q3, the company reported a 5.5% year-on-year increase in value sales.

While the luxury segment witnessed growth in double digits, the premium segment grew at a slower pace in the third quarter, impacting the mix, Syngle said. The economy and premium range of products contributed 80% to sales.

The paintmaker's gross margins reached a four-year high of 43.6%, and operating margins came in at 22.6% given continued material deflation.

Syngle has maintained its guidance for 18–20% Ebitda margins as it expects to reinvest the input cost gains towards marketing and ad spends.

During the quarter, Asian Paints added 2,000 retail touchpoints, taking its total count to 1.62 lakh.

The contribution from new products increased to 12% of sales. Syngle said that 280 new products were launched, and 120 patents have been granted in the last six years, of which 30% have been commercialised already.

Within segments, Syngle said that the kitchen and bath businesses didn’t perform well in Q3. Sales of bath fitting businesses fell 5% over the previous year on account of weak industry demand, while kitchen businesses saw flat growth after four quarters of decline. Despite almost a decade of operations, these businesses have not delivered and contribute just 2% of revenue and nil to profits. Syngle said that the company is now revamping its strategy by shifting from pushing these as standalone businesses to offering them as an integral part of the integrated home decor offering.

The company, meanwhile, is betting big on the home décor business.

It expects to scale up this business to tackle impending competition in the paints space and protect its market share. "We expect home décor to contribute 8–10% to decorative revenue by FY26 from 4% now," he said.