Asian Paints Q4FY22- Paints business shines but other verticals need to catch up

Asian Paints on Tuesday, 10 May 2022 reported its Q4FY22 number and its consolidated revenues of Rs 7,973.1 crore and consolidated net profit at Rs 850.42 crore. 

Asian Paints’ results were largely in line with street expectations with net sales YoY growth of 20% though profit growth remained flat. An 8% rise in volumes of the decorative paints business and consolidated OPM (operating profit margin) of 18.3 %, was higher than the rest of the paints industry. 

This quarter was impacted on account of a one-time loss witnessed in Sri Lanka business due to the unstable situation in that country. The reduction in profit was also due to Rs 53.73 crore exceptional loss in delay of subsidy by state governments and Rs 48 crore loss from Sri Lanka business.

Asian Paints profitability impacted by rising crude prices and losses in Sri Lanka

Quoting the Managing Director and CEO Amit Syngle, “It was yet another quarter of solid and strong double digit value growth across all businesses, despite the prevailing uncertainty around Covid, macro-economic challenges and heightened geo-political tensions. The domestic decorative business grew strongly, registering 8% volume growth and 20% plus revenue growth on a high base.”

Asian Paints operating profit margins improve in a rising crude oil environment

While the last few quarters have seen rising crude oil prices, Asian Paints was able to improve its operating profit margins in Q4FY22 to 18.3%.

One of the key reasons in maintaining the margins was the price increase taken in response to the raw material inflation in subsequent quarters.

Raw material inflation and corresponding price hikes protect the gross margins of the paint business

Asian Paints has a diversified portfolio apart from its decorative paints business in India, where it is an undisputed market leader. In its other segments, the Industrial Coatings business closed the quarter with another round of robust double-digit revenue growth with continued momentum in the Protective Coatings segment.

On a consolidated basis Asian Paints has maintained its margins in FY21, yet there are areas of concern from some of the businesses. The kitchen business registered a loss of Rs 9 crore in FY22 for sales worth Rs 430 crore and bath business, despite sales of Rs 360 crore in FY22, posted a profit of barely Rs 4 crore.

Similarly, among the international businesses, Africa and Middle East made a loss both in Q4FY22 as well as for FY22. Asian Paints needs to focus on the profitability of these verticals in FY23.

Profitability is a concern in the kitchen and bath business as well as international markets

Asian Paints also has aggressive plans in the home décor space. These include the recent acquisition of decorative interior lighting company, White Teak and Weatherseal, a UPVC door and window manufacturer. It is also putting up new plants for manufacture of bath and sanitary ware as well as designer and general tiles. How well these initiatives play out will define its growth in coming quarters.

Asian Paints ends FY22 with decent margins and profitability in the face of raw material inflation and operational impact in Sri Lanka. It is also spreading itself in other verticals apart from paints, albeit not yet profitably. It remains to be seen in FY23, whether it can be profitable across verticals or will the margins enjoyed via decorative paints be dented by other verticals.

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Research done by: Ketan Sonalkar, SEBI Rgn No INA000011255