Asian Paints Ltd is an Indian multinational paint company, headquartered in Mumbai, Maharashtra, India. The company is involved in the production, marketing, and distribution of paints, coatings, home décor goods, bathroom fixtures, and related services. Asian Paints is India’s largest and Asia’s third largest paints corporation. The corporation has manufacturing activities in 15 different nations, including India, with a major presence in the Middle East and the Indian subcontinent. Asian Paints is the holding company of Berger International.
Asian Paints on 26th July 2022 announced their Q1FY23 results, where they reported high double digit YoY growth in both top as well as bottom line, partly due to low bas effect as figures of Q1FY23 were affected due to Covid-19 & partly due to growing volumes in both domestic and foreign markets. But still the margin remains in pressure due to increasing inflationary trends. Even on the stock exchanges, share price of Asian Paints has delivered a return of 7% in the last one week & started moving upwards even before announcement of Q1FY23 results. Let’s now analyse their Q1FY23 results in deeper details and understand what future holds for the Paints giant.
Key Highlights of Asian Paints results
- Consolidated revenue for the Q1FY23 period came in at Rs 8,607 crore, a 54% YoY growth
- On the operating front, its EBITDA for the Q1FY23 increased by 70.8% YoY to Rs 1556 crores
- Tier 1/2 growth was driven by luxury & premium products mainly emulsion, waterproofing & adhesives while Tier 3/4 cities witnessed strong growth in economy range.
- Asian Paints reported an 80.4 % YoY growth in consolidated profit at Rs 1,017 crore for the Q1FY23
- Steep inflation in raw material prices in the last quarter of previous financial year and again in this quarter saw gross margins impacted across all businesses despite the price increases taken to mitigate this pressure to an extent
- The competition in the paints segment is set to intensify with Aditya Birla Group’s flagship company Grasim Industries announced plans, while Sajjan Jindal-led JSW Group forayed into the sector
Asian Paints results: Revenue grew 54% YoY, while EBITDA for the Q1FY23 increased by 70.8% YoY
Consolidated revenue for the Q1FY23 period came in at Rs 8,607 crore, a 54% growth over Rs 5,585.36 crore reported in the Q1FY22. The international business, which had seen some continuity in the Q1FY22, registered strong double digit revenue growth.
On the operating front, its EBITDA for the Q1FY23 increased by 70.8% YoY from Rs 911 crore in Q1FY23 to Rs 1556 crores in Q1FY23, and the margin expanded by 194 basis points (bps) at 10.61 % compared to the Q1FY22 (One basis point is one-hundredth of a %age point).
Gross margin, however, contracted sharply to 40.26 % in Q1FY23, compared to 54.67 % in Q1FY22 despite price hikes taken by the company due to higher input cost. Further Tier 1/2 growth was driven by luxury & premium products mainly emulsion, waterproofing & adhesives while Tier 3/4 cities witnessed strong growth in economy range.
“The domestic decorative business more than doubled its volume and delivered stellar revenues over the lower base of last year, which had suffered from the first nationwide lockdown. The industrial business and the home improvement business also doubled its revenue on last year’s low base,” Amit Syngle, Managing Director & CEO of the paint company said.
Asian Paints results: PAT grew 80% YoY in Q1FY23 on low base
Asian Paints reported an 80.4 % YoY growth in consolidated profit at Rs 1,017 crore for the Q1FY23, partly due to a low base. The Q1FY22, when the company reported a profit of Rs 568 crore, was affected by the second Covid wave.
Rupee depreciation, on the back of global policy tightening, further aggravating inflationary pressures. Persistent inflation could, however, dampen consumer sentiments
“Steep inflation in raw material prices in the last quarter of previous financial year and again in this quarter saw gross margins impacted across all businesses despite the price increases taken to mitigate this pressure to an extent,” Syngle said.
Growing Competition in the Paints Sector
“With the entry of new players with deep pockets and massive commitments on investments, the overall industry may see a shift in demand and margin structure due to the heightened competition. We remain cautious as the sector may not enjoy the higher multiples of the past,” Motilal Oswal said in a report. The company is likely to raise prices by 0.5% in the first week of August, while the gross margin is likely to remain in the 38-40.5% band for some time, it added.
As Sajjan Jindal-led JSW Group enters the paints market and Grasim Industries, the flagship firm of the Aditya Birla Group, announces plans, the competition in this market is expected to heat up. At present, Asian Paints – with a production capacity of 1,700 million litres per annum (MLPA) – is India’s largest and Asia’s third-largest paints company.
Thus, management remains focused on double digit volume growth with gross margins at 38-40.5% for FY23. For which Innovations continue to drive growth with the launch of 10 new products like anti-insect enamel, PU enamel, high-quality high-end glitz matte, luxe collection leading to 40 unique APNT products in the market. Lastly, FY23 capex is estimated at Rs 8bn.
Technical Analysis of Asian Paints share price
After a significant 20% share price correction over the past month, Asian Paints’ stock is currently in an uptrend. The 50 EMA has been trading below the 100 & 200 EMAs for the previous few months as it faces strong immediate resistance at 3268. After the announcement of Q1FY23 results, Asian Paints stock has seen consecutive green candles for last few trading sessions. Analysts believe, the stock is moving towards its resistance and have a potential to deliver a 10-15% return in medium to long term.
Our view:
The introduction of new big-budget firms into the paints market is expected to increase competition, which will alter the sector’s dynamics. Asian Paints Limited would therefore need to make significant investments in sales and marketing in order to keep up their leadership position in the fiercely competitive business.
Additionally, paint firms increased their prices during the past year, resulting in an extraordinary 22% increase during that time. Although paint businesses have demonstrated a great capacity to set prices, such abrupt increases will have a negative effect on volume growth in the near future (especially at the lower end). Even overall, material inflation expected to ease gradually from second half of current financial year. Q2 inflation estimated to be in low single digits.
India’s paint segment is estimated to be at Rs 60,000-65,000 crore with organised players cornering 70% of the market. Within the organised segment, decorative paints account for about 78-80% and industrial paint accounts for the rest. Thus, investors can maintain a positive view on this sector, which have a good amount of untapped potential and keep a close check on the changing industry dynamics.
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