Mumbai-based Asian Paints finds itself in a hard place after delivering a weak set of numbers for the third straight quarter in a row. The September quarter (Q2FY25) was the weakest yet, marked by a 5.3% drop in consolidated revenue to Rs 8,003 crore and a 480 basis points decline in operating margin to 15.4%. Consolidated net profit fell 42% to Rs 695 crore.
While heavy rains and flooding in many parts of India hurt demand in Q2, the company is counting on price hikes and the wedding season in Q3 to shore up topline. The company is also focusing on a comprehensive set of consumer and dealer initiatives to counter increased competition within paints.
“We are bringing back our corporate branding to increase excitement among consumers. At the same time, we are focusing our attention on loyalty programmes targeted at contractors and improving quality for painters. We have also improved dealer margins and our driving differentiation in the market to counter competition apart from increasing the return on investment for tinting machines placed at retail counters,” Amit Syngle, MD & CEO, Asian Paints said during an investor call on Monday.
Though brokerage Nomura says that there is a limited impact of new player Birla Opus on Asian Paints, which is the market leader within paints, analysts at ICICI Securities say that there has been market share loss with rising competitive pressure. Apart from Birla Opus, the last few years have seen entry of players such as JSW Paints and JK Paints and Coatings.
In Q2, Asian Paints’ domestic decorative business posted a 0.5% drop in volume due to weak sentiment in urban centres versus rural areas. Revenue growth was impacted by price cuts, portfolio changes and increased discounts.
The impact of price hikes by around 2.5% taken in the September quarter is expected to be visible in the second half of the year, both the company as well as experts tracking the market said.
Analysts also remain concerned about the value creation potential of new businesses. In Q2, the company took an impairment loss of Rs 199.8 crore on its investments in White Teak and Weatherseal, both home decor brands. This comes within two years of its investments in these brands, wherein Asian Paints took a 49% stake in White Teak for Rs 180 crore and a 51% stake in Weatherseal for Rs 19 crore in 2022.
ICICI Securities says that Asian Paints may have to continue investing in these brands, increase dealer margins further to protect market share and launch innovative products to stay competitive in market.
On Monday, Asian Paints’ stock tanked 9% intra-day on the BSE following its Q2 results, settling 8.18% down versus the previous day’s close at the end of trade, at Rs 2,542.65 apiece. In the last one year, Asian Paints has lost nearly 18% of its value on the BSE, even as the broader BSE Sensex has grown 22% at the same time.
From: financialexpress
Financial News
