The increasing price of Asian Paints Ltd is slowly winning the cost inflation. From the report of analysts in nine months of the Financial year 2022. The company took a cumulative price lift of approximately 22% to nearly 25% raw material inflation.
The management added that the decorative paints industry took price increases during the festive season, with a 9-10% blended price hike from 12 November, and a 4-5% additional price increase from 5 December.
Asian Paints Ltd is an Indian multinational paint company, headquartered in Mumbai. The company is involved in the business of manufacturing, selling, and distributing paints, coatings, products related to home decor, bath fittings, and providing related services.
Asian Paints is India’s largest and Asia’s third-largest paints company Asian Paints is the holding company of Berger International. The company’s manufacturing functions were done across 15 countries of the world including India, with a substantial presence in the Indian subcontinent and the Middle East
On a combined basis, gross margins improved by 200 basis points (bps) sequentially in Q3FY22 to 36.8%, although compared to the same quarter last year, margins are down by 830bps. The management anticipated the consequences of price lift to start emphasizing earnings from the March quarter, which is expected to change into a full improvement on gross margins on a succeeding basis.
Asian Paints performance remains the most magnificent among the top-three players, the recent increase of price hikes increases shows the worst of margin pressure. Analysts at HDFC Securities Ltd report shows success focus will shift back to demand growth. Asian Paints reported better-than-expected volume growth in the December quarter, despite the price hikes. decorative paints business shows volumes rise 18% year-on-year. On a three-year and two-year CAGR basis, decorative paints volume growth was at 20% and 25%, respectively.
The company observed wider-based growth around markets with metros and tier-I and tier-II cities outperforming tier III and IV towns. Oppositely in Q3, the company did not notice any signs of a decrease in rural demand.
Demand growth will be the key monitorable and how the attitude on rural growth in consumer dominant turned negative all of a sudden in recent months also the report of analysts at JM Financial Institutional Securities Ltd emphasis that they calculate the hyper-growth phase of paints
Sharing the same problem with analysts at Motilal Oswal Financial Services Ltd said with the arrival of Grasim Industries Ltd expected in the second half of the calendar year 2022, competition in this sector is to increases Investors will calculate that the Aditya Birla group company, Grasim Industries, will invest Rs 5000 crore in this venture and aspires to become the second-largest decorative paint maker.
Some competitions occur in this sector’s demand outlook and given the expensive valuations of Asian Paints, investors are better off not ignoring these risks. Considering the earnings evaluated for FY23, the Asian Paints stock is trading at a price-to-earnings multiple of around 65 times.