As the fourth quarter earnings season is nearing an end, the paint sector showcased positive performance in terms of sales and volume growth and margin expansion. The quarter performance was driven by value additions with more premium products offering, new launches, and distribution expansion. Also, with the raw materials prices easing, the companies in the segment witnessed margin expansion during the quarter along with value and volume growth.
Asian Paints’ fiscal fourth quarter profit jumped 44 per cent at Rs 1,258.41 crore, as against Rs 874.05 crore in the fourth quarter of FY22, surpassing estimates. It posted revenue from operations at Rs 8,787.34 crore, up 11.3 per cent from Rs 7,892 .67 crore in the same quarter last year.
Berger Paints reported fiscal fourth quarter profit at Rs 185.69 crore, down 15.8 per cent from Rs 220.66 crore in the same quarter last year. It posted revenue at Rs 2,443.63 crore, up 11.7 per cent from Rs 2,187.51 crore in the fourth quarter of FY22.
Kansai Nerolac Paints declared strong Q4 earnings. Compared to a consolidated net profit of Rs 19.17 crore in the January-March period a year earlier, Kansai Nerolac Paints Ltd. recorded a consolidated net profit of Rs 96.24 crore for the fourth quarter ending March 2023, showing a YoY rise of 401.56 per cent YoY.
What’s driving value and volume growth?
The sector reported strong volume as well as value growth driven mostly by the decorative paints category in the fourth quarter of FY23. “The decorative paints volume growth was higher by 14.5 per cent supported by dealer expansion and new product launches,” said Aniruddha Joshi, Research Analyst, ICICI Securities. This, coupled with capacity expansion, new product launches and dealer expansion by 20 per cent in FY24 is likely to drive volume growth for Berger Paints in the coming future. “Increased focus on the water proofing and building chemical category will continue to drive revenue growth for Berger,” Joshi added.
Berger Paints reported Q4 net sales growth led by volume growth of 11.1 per cent jump in the India business, as the decorative business reported value and volume growth in excess of 14 per cent each in spite of an inflationary environment,” stated Amit Purohit, Vice President, Elara Capital. Besides new launches, especially in the premium category, Berger Paints also increased media investment to aid the growth of the category.
Similarly, Asian Paints also recorded revenue growth on the back of growth initiatives in decorative and performance coating. “Initiatives involved more feet on street, digital interventions, influencer outreach, new product launches, approvals, and projects which have gathered momentum,” said Amnish Aggarwal, Head of Research, Prabhudas Lilladher.
Asian Paints’ Q4 net sales rose 11.3 per cent on-year as the domestic decorative coatings posted value/volume growth of 13 per cent and 16 per cent, with a strong three-year CAGR of 22.8 and 25.6 per cent, respectively. “The mix in Q4 was led by the economy and waterproofing range. However, growth for the premium and luxury segments picked pace compared with Q2/Q3. Asian Paints distribution footprint expanded to ~0.15 million retail touchpoints (addition of 15-20k in FY23) and it aims to add another 10 per cent in FY24,” said Amit Purohit, Vice President, Elara Capital. Home décor business will continue to add to growth as Asian Paints enters new categories of rugs, flooring and bedsheets.
Meanwhile, Kansai Nerolac Paints showed 13 per cent revenue growth on the back of improved demand and new product launches across decorative & industrial paints. ICICI Securities said that decorative paint revenue will be a key trigger for the company’s future growth. “Revival in passenger vehicle sales and strong demand momentum in industrial paints would help in a recovery in 45 per cent of KNL’s revenue portfolio. Focus on improving product mix towards premium products would help drive gross margin, going forward,” said Hitesh Taunk, Senior Research Analyst, ICICI Securities.
Margin improvement on low raw materials cost
The companies in the sector showed margin improvement during the quarter on the back of easing raw materials cost. “Benefits of moderating raw material inflation aided margins in Q4 for Berger Paints,” said Jay Gandhi, AVP – Consumer Discretionary, HDFC Securities. Gross margin for the company improved 93 bps YoY supported by lower raw material prices. However, benefit of low raw material prices was offset by higher operating expenses leading to a decline in EBITDA margin by 75 bps.
For Kansai Nerolac Paints as well, “gross margin improved 397 bps YoY supported by lower raw material prices and price hikes in industrial paints. As a result, the EBITDA margin improved to 9.7 per cent,” added Taunk.