Posted on February 4, 2025 by Niftynews
Asian Paints, one of the leading players in the Indian paints industry, reported a 23% drop in net profit for the third quarter of FY25, reaching ₹1,128 crore compared to ₹1,475 crore in the same quarter last year. Despite the earnings miss, the company’s stock showed a positive uptick, with shares rising nearly 4% during the trading session on BSE.
Revenue Decline Amid Tough Conditions
The company’s revenue for Q3 FY25 saw a 6% decline to ₹8,549 crore, down from ₹9,103 crore in Q3 FY24. The decrease in revenue was mainly attributed to subdued demand and the ongoing downtrading trend, especially in urban centers. The weak festive season further contributed to the revenue shortfall, as it typically generates a significant portion of annual sales. The market had expected a slightly smaller decline in revenue, as analysts had forecasted a 3.4% drop to ₹8,797 crore. Asian Paints’ ability to improve operating margins sequentially amid tough conditions is a silver lining, but it wasn’t enough to prevent the dip in revenue.
Volume Growth in Domestic Decorative Business
While the overall revenue from the decorative business was hit, the domestic decorative segment saw a 1.6% growth in volume. This growth was lower than usual due to weak demand during the festive season. On the other hand, Asian Paints’ industrial business showed more resilience, with a 3.8% growth in revenue, supported by strong performance in the General Industrial and Refinish segments. The industrial segment’s growth highlights the diversification of Asian Paints’ business model, which provides some cushion against fluctuations in the decorative paint segment.
International Growth Provides Some Relief
One of the standout positives for Asian Paints in Q3 was the growth in international markets. The company posted a 5% revenue growth in its international business in INR terms, with a stronger performance in constant currency terms, where revenue grew by 17.1%. The Middle East and recovering macro-economic conditions in key Asian markets were key contributors to the international revenue increase. This solid growth in international markets may help cushion the company’s overall performance and provide a brighter outlook for the future.
Profitability Hit by Mix of Factors
Despite strong performance in certain segments, Asian Paints’ profitability suffered due to a combination of factors. The adverse product mix, coupled with higher sales and distribution expenses, impacted the operating margins. The company reported a drop in operating margin, although sequential improvement in margins was noted compared to the previous quarter. The operating margin for Q3 FY25 was slightly affected on a year-on-year basis, but this was expected given the backdrop of weak demand and increased costs.
Management’s Outlook: Cautious Optimism
Asian Paints remains cautiously optimistic for the near-term recovery in demand, despite the ongoing challenges. Amit Syngle, the Managing Director & CEO, highlighted that the paint industry continued to face subdued demand conditions, particularly in urban centers. However, the company continues to focus on its long-term growth strategy. They are investing in network expansion for their home décor business and maintaining a customer-centric approach to build brand loyalty.
“We remain cautiously optimistic on a recovery in demand conditions, and we will continue to focus on innovation, strengthening our brand presence, and expanding our reach across different market segments,” said Amit Syngle in the company’s filing.
Challenges Ahead and Key Focus Areas
As Asian Paints moves into the next quarter, it is likely to face the continued pressure of weak demand conditions. Downtrading and increased raw material costs could further put pressure on margins. Despite this, the company’s industrial segment, including general industrial paints and automotive coatings, is expected to perform better than its decorative segment, offering some hope for revenue growth in the future.
The company also plans to maintain its focus on international growth, particularly in regions like the Middle East, where it has seen an uptick in sales. With the macro-economic conditions in key Asian markets improving, Asian Paints is hopeful that these regions will continue to provide revenue support.
Investor Sentiment and Stock Performance
Despite reporting a decline in profit and revenue for the quarter, Asian Paints’ stock has experienced a modest recovery, with shares trading up nearly 4% on the BSE. Investors seem to have digested the weaker-than-expected results, focusing on the company’s long-term prospects, especially its international business expansion and resilience in the industrial paint market.
Conclusion: Mixed Signals for Asian Paints
Asian Paints’ Q3 FY25 results provide a mixed picture. While the company has faced challenges, including muted demand and a weak festive season, there are several positives to take away from the results. The company’s ability to maintain growth in international markets, especially in the Middle East, and its strong performance in the industrial segment, gives investors reasons to remain optimistic in the long term. However, the weaker domestic decorative business, adverse product mix, and increased distribution expenses pose short-term concerns.
As Asian Paints focuses on navigating these challenges, its strategic initiatives, such as network expansion and investment in innovation, will be crucial in determining the company’s ability to recover in the near future.