Asian Paints profit spurts, but margin pressures visible
It was a quarter of stellar profit growth for Asian Paints and the stock price impact was immediate. On 20 July, the stock shot up 7% to cross the covered Rs.3 trillion market cap level. That makes Asian Paints the twelfth most valuable company in the Indian market and a veritable FMCG player. However, there was also the story of margins being pressured by a sustained rise in input costs. We will come back to the margin pressures later, but first, let us look at the financial performance for the Jun-21 quarter.
Asian Paints reported 91% YoY growth in revenues at Rs.5,585 crore but COVID 2.0 pressures ensured that sequential sales revenues were lower by 16%. The top-line growth was driven by a 106% growth in the decorative paints segment in volume terms and 95% in value terms. Other segments like industrial paints and new products like adhesives, wood finish, waterproofing also showed good traction. Net profits for the Jun-21 quarter were up 160% at Rs 569cr, although profits fell 33% on a sequential basis.
Read : Paint Sector Stocks
Despite the ostensibly good results, the gross margins for the quarter fell by 500 bps to 39.6% sequentially. Against the 15% spike in input costs, only 3% could be passed on as price hikes. The input pressure was apparent as exports to Asia and Africa witnessed pre-tax losses for Jun-21 quarter. The big challenge remains the spike in material costs amidst a competitive market. Cost controls helped mitigate the input cost spike to some extent, but that will saturate.
Net margins of Asian Paints for the Jun-21 quarter came in at 10.88%. This is better than the 7.47% NPM in the Jun-20 quarter but lower than the 12.81% NPM recorded in the sequential Mar-21 quarter.
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