Asian Paints’ Amit Syngle Says Inflation Can Be A ‘Party-Spoiler’ In Coming Quarters
Asian Paints has passed on price hikes totaling 2%, and will be calibrating keeping in mind inflationary pressures, the MD says.
India’s largest paintmaker expects the coming quarters to be “strong” but inflation to “play party-spoiler”.
“Inflation could spike to 5-7% in the first quarter of the ongoing fiscal. If the situation continues, we will have to take one or two more price hikes,” Amit Syngle, managing director at Asian Paints Ltd., told BQ Prime’s Niraj Shah in an interview.
The company, he said, has passed on price hikes totaling 2%, and will be calibrating keeping in mind inflationary pressures. It had raised prices by 23% during the full fiscal ended March 2022.
Amit Syngle, managing director at Asian Paints Ltd.
That helped its margin expand sequentially in the quarter ended March 31, even as it narrowed over the year earlier. Asian Paints’ revenue and profit met estimates.
The momentum, Syngle said, should continue, but the price hikes impacted demand from tier-3 and 4 cities. “Our economy segment performed better than the premium offerings because people downgraded purchases due to price hikes. Some even delayed them.”
Institutional projects, Syngle said, weren’t growing at the same pace in the fourth quarter as in the second and third. “Real estate prices were going up, but we saw some pressures in projects from the institutional market. It’s difficult to say [if] it can be worse off.”
He, however, remained optimistic on the demand scenario. “This will be a strong year. We don’t need to bother about demand this year, only inflation is to be thought about.”
Syngle said he doesn’t see big changes in competitive intensity or Asian Paints getting affected. “As the leader, our task is to grow the overall market and try to make room for co-existence. We rely on efficiencies and innovations to be ahead of the market and price fairly.”
Acquisitions
Asian Paints’ aspiration is to make a mark in the home decor business, Syngle said. “We are looking to become a full home decor player. The Weatherseal and White Teak acquisitions are part of our endeavour to offer customers decor under one roof.”
The company, he said, targets the home decor business to contribute 8-9% revenue to overall decorative business in the next two-three years, rising from the current 3-4%.
Its home décor revenue grew 25% over the year earlier in the fourth quarter, margin expanded 715 basis points.
Watch the full interview here:
Here's what brokerages made of Asian Paints' Q4:
Motilal Oswal
Maintains 'neutral' rating with an increased target price of Rs 3,120, implying a potential upside of 1%.
Beat on Motilal's forecast; expensive valuations limit upside.
Growth in the International business was good but profitability was affected by its inability to fully pass on the increase in cost and the currency devaluation in Sri Lanka, Egypt and Ethiopia, which is likely to continue.
A better-than-expected near-term margin outlook has led to a 14%/6% increase in our FY23/FY24 earnings-per-share estimate.
While Asian Paints' demand outlook is better than its FMCG peers, despite the high price increases, valuations are expensive.
IDBI Capital
Maintains 'hold' with a target price of Rs 3,453, implying a potential upside of 12%.
Volume growth trend in decorative is encouraging at 8% year-on-year on a high base of 48%. This performance is despite soft business in January 2022 due to omicron.
In home decor, Asian Paints guides for complete control on value chain with almost all categories being owned/manufactured by the brand.
Nirmal Bang
Maintains 'accumulate' with a reduced target price of Rs 3,295 from Rs 3,535 earlier, still implying a potential upside of 6.8%.
Demand in the last three months till April 2022 has been good. Even if the current demand situation continues, growth should be good in FY23.
Nirmal Bang sees continued robust volume growth in the organized domestic decorative business, market share gains, recovery in GDP growth, higher realization growth, led by price action and faster growth in premium/luxury products, higher contribution from allied businesses and recovery in margins in FY23 & FY24.
Valuation for Asian Paints will always be at a premium to other consumer peers, as it has consistently delivered strong volume-led growth, maintained market leadership in its core business, continuously generated robust cash flows and sustained a healthy payout ratio.
With no major capex requirement for the next couple of years, return ratios should improve going ahead. But, margin deterioration caused by reasons other than inflation might pose a risk to future valuation for the industry.
Yes Securities
Maintains 'accumulate' with a target price of Rs 3,708, implying a potential upside of 20.2%.
Considering strong demand momentum despite sharp price hikes, under penetration of paints and opportunities in new segments and services, Yes Securities feels demand for paints is expected to remain robust in medium term and Asian Paints is in a sweet spot to capture a major chunk of incremental demand.
Foray into home décor to broaden its product and service offerings to a large consumer base is expected to make Asian a go-to brand in the broader home improvement space.
Its pricing power, distribution prowess and balance sheet strength should enable it to ward of any competition that comes in it way.
Considering the above, we continue to remain upbeat on the stock and feel premium valuations are justified
Shares of Asian Paints Ltd. fell as much as 3.48%, the most in five trading days to Rs 2,979 apiece. It then recovered to trade 1.6% lower as of 11:50 a.m.
Of the 42 analysts tracking the company, 19 maintain 'buy', 11 suggest 'hold' and 12 recommend 'sell'. The overall consensus price of analysts tracked by Bloomberg implies an upside of 8.3%.