Impacted by a rise in raw material prices and global sluggishness, Asian Paints posted a fall in third-quarter net profit and margins, even as product price hikes in November and December helped it soften the impact. Now, with demand picking up, the company expects double-digit growth and plans to add another four ‘Beautiful Homes’ stores in Q4, its MD & CEO Amit Syngle tells FE’s Rajesh Kurup. The firm is also looking at capacity additions across facilities in India in FY23.
Edited excerpts:
Asian Paints’ Q3 net profit fell 18%, Ebitda was down 14% and margins tanked 18.6%. Was this impacted by rising raw material prices?
This year has been pretty unprecedented on the material inflation front. We saw a 15% inflation in Q1 over Q4 of last year, 6% in Q2 over Q1 and 4% in Q3 over Q2, which affected our overall margins. We had hiked prices in November by 9-9.5% and by 4.5% in December, taking the overall price hike in Q3 to about 15%. The bright side of the price hike was that our quarter-on-quarter gross contributions went up by about 200 basis points and PBDIT rose by 500 bps. Any comparison with last year is unfair as raw material prices were at the lowest level in FY21.
Which were the raw materials that were on fire?
We saw unprecedented price hikes in titanium dioxide, a basic raw material, and monomers, which are used for emulsion making. Due to the rise in crude prices, solvents were also on fire, while additives and smaller ingredients also saw inflation upwards of 40%.
Were global markets also sluggish during the quarter?
The larger deficit was from Africa, where we have representations in Egypt and Ethiopia; both the markets were slow and had other issues such as currency devaluation. The Middle East registered double-digit growth despite the challenging competitive environment. Asia and the South Pacific did extremely well for us.
Did the auto sector slowdown, mainly due to the chip shortage, have its impact?
We have two JVs with PPG of the US, one for the auto and the other for non-auto industrial coatings. In Q3, for us, the auto sector grew in single digits. The demand will now come back in Q4, because the chip position has improved, and auto majors are increasing production.
How do you see Q4 and FY23 unfolding?
The third wave of Covid impacted the second fortnight of December and was well into January too. The consumer demand was a bit subdued due to restrictions across the country. Certain regions of Kerala, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana were more affected as compared with other regions across the country. Overall, the demand in February has been good and the demand for paint is back to normal. We are expecting February and March to be good, which would help us register double-digit growth in volume and value.
You also forayed into furniture, furnishings and lightings?
We are committed to home décor in a strong way. We are moving into ‘share of spaces’ in homes from the ‘share of surface’; the transition is from the walls to the spaces between the walls. As of December, we have 29 ‘Beautiful Homes’ stores for home décor and will add another four stores in Q4. We also have a Beautiful Homes service, providing home renovation and refurbishing.
What are your expansion plans?
Our capacity utilisation is at about 70-75%. We are looking at another phase of capacity addition in Mysuru (Karnataka), Khandala (Maharashtra) and Ankleshwar (Gujarat) in the next financial year (FY23).
Asian Paints added 45,000 new retail points over the past seven quarters, mostly during the pandemic time.We are looking at expanding our distribution in metros, Tier-I and II cities and suburbs, and that’s where the retail points are coming up.
