Analyst Concall
Asian Paints says need 2 more qtrs for strong rise in demand
This story was originally published at 20:47 IST on 4 February 2025
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--Asian Paints: Haven't seen this kind of demand challenge in 3 decades
--CONTEXT: Asian Paints mgmt comments in post-earnings analyst call
--Asian Paints: Have to wait 2 more qtrs to see strong YoY growth in demand
--Asian Paints: Demand environment muted in overall industry
--Asian Paints: Urban markets showing slow growth
--Asian Paints: Cautiously optimistic of demand rising in next couple of qtrs
--Asian Paints: Good monsoon, rise in govt spend to drive growth, demand
--Asian Paints: Rural demand seen better compared with urban markets
--Asian Paints: See improvement in demand environment in Asia Jan-Mar
--Asian Paints: Rural demand expected to rise further Jan-Mar, Apr-Jun
--Asian Paints: Expect double digit growth in B2B segment in next 12 months
--Asian Paints: Should be able to maintain margins around 18-20% near term
--Asian Paints: Don't see much uniqueness in new competition pdts for now
--Asian Paints: Focus on scaling up industrial business going forward
--Asian Paints: Weakening rupee a concern, need to be watchful
--Asian Paints: Retail touch points reached 169,000 as on Dec 31
--Asian Paints: See pickup in demand for institutional business
--Asian Paints: New products contributed over 12% to Oct-Dec sales
--Asian Paints: See traction in government projects segment
--Asian Paints: Looking options to optimise operating expenses
By Narayana Krishna and Anshul Choudhary
HYDERABAD/MUMBAI – Asian Paints Ltd., a leading manufacturer of paints, decorative coatings and home decor products, indicated on Tuesday that a strong year-on-year demand growth in the industry may take another two quarters to materialise as urban demand remains subdued. Speaking at an analyst call, the company's management noted that the overall demand environment in the paint industry remains weak and that is likely to persist for a few more quarters.
The management said they haven't seen this kind of weak demand environment in the last three decades. The company said demand for paints was better in the rural markets compared with the urban. Rural demand is likely to improve further in Jan-Mar and Apr-Jun, when the effect of a good monsoon is likely to trickle down and also due to the increase in spending by the government.
For the December quarter, the Mumbai-based company reported a 23% on-year fall in its consolidated net profit to 11.1 billion. This is the third consecutive quarter that the company reported a fall in net profit. Revenue for the quarter, too, fell over 6% on year to INR 85.49 billion and the fall was the steepest in the last three quarters.
Asian Paints said the company has recorded decent growth in its business-to-business segment led by recovery in factories and automobile segments. The company wants to focus more on improving the business-to-business segment with an aim to grow in double digits over the next 1 year. Asian Paints management said it was cautiously optimistic about demand revival in coming quarters. The company said it was already witnessing traction in government spending and this may aid the demand revival.
With the recovery in some Asian markets during Oct-Dec, Asian Paints management is expecting further improvement in the region during Jan-Mar. Asian Paints is selling its products in Asian markets like Sri Lanka, Bangladesh, and Nepal besides overseas markets like Dubai, Ethiopia and Egypt.
While there is a continued stress seen in the next two quarters, the company is expecting at least single digit value growth in subsequent quarters as it expects demand revival, Asian Paints management said.
The company continued to expand its retail touchpoints, which were at 169,000 as of Dec. 31. Besides retail, the company is also focusing on scaling up its industrial business, which includes auto sector paints and powder coating for industrial usage.
MARGIN GUIDANCE
Asian Paints management said the company was hopeful of maintaining the operating margins around 18-20% in the near term by improving the market share and optimising the costs. For Oct-Dec, Asian Paints earnings before interest, tax, depreciation and amortisation margins for the quarter fell by nearly 350 basis points on year to 19.2%.
Adverse product mix with increased sales and distribution expenses affected the operating margins on year, while sequentially it saw an improvement, the company said. The company said it was also looking to cut the employee costs as well as sales and distribution expenses going forward to improve margins.
On the recent entry of new brands in the paints market, Asian Paints said there was no uniqueness seen in those products launched by the competition and discounts and trade benefits helping the new comers to penetrate into the market. In February 2024, Grasim Industries Ltd entered into paints with its brand Birla Opus and now projected as second largest paints company in the country in the organised paints business. Asian Paints management said it has not evaluated the impact of the competition as of now.
The company said differentiated products and new services like beautiful home painting have been well received by the customers. The company said innovation will help the company to retain its position. During Oct-Dec, new products contributed over 12% of the total sales.
On raw material prices, the company said it was seeing some softening; however, the weakening rupee is a concern and the company is watching the trend.
On Tuesday, shares of Asian Paints ended at INR 2354.35 on the National Stock Exchange, up 2.7% from its previous close. End
Edited by Akul Nishant Akhoury
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