Why Asian Paints is an outlier in FMCG space

All-round focus and strong distribution has ensured that the paints major has consistently delivered double-digit volume growth for a few quarters now

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If there is one company that has consistently delivered double-digit volume growth in the past year amid slowdown concerns in the fast-moving consumer goods space, it is Asian Paints.

In April-June 2016 quarter, the Mumbai-based company’s volume growth was 11-12 per cent. In the March 2016 quarter, its volume growth was in the region of 12-13 per cent, while in December 2015 quarter it was 15 per cent.

Asian Paints report an 11 per cent volume growth in the June 2015 quarter and eight per cent for the October 2015 quarter.

Analysts tracking the company say the country's largest decorative paints firm has leveraged its product portfolio using its distribution reach and marketing muscle to turn in the volumes in the past year.

In his analysis of the company's June 2016 quarter numbers, Abneesh Roy, senior vice-president (research), institutional equities at Edelweiss, said all ends of Asian Paints business' including decorative, industrial, auto, home improvement and international did well in terms of sales growth.

A closer look at the numbers, especially in the decorative segment, which makes up over 80 per cent of Asian Paints consolidated revenue, shows it is the lower and mid ends of its portfolio that are delivering the volumes. This comes as consumers in general opt for affordable painting solutions choose to repaint their homes whenever the window is available.

As the largest player in the space, Asian Paints has a portfolio that straddles the pyramid - from top to down - sector analysts said. At the lower end, it has distempers, affordable oil paints, and wall putty to address the needs of consumers with limited purchasing power.

While volume growth in part in the March and June 2016 quarters was aided by price cuts (of two per cent) that Asian Paints took in February 2016, this cushion might no longer be available as commodity prices move up.

It is here that distribution and marketing muscle could help drive sales for the company. In a recent report, Religare Institutional Research analysts Varun Lohchab, Manish Poddar and Premal Kamdar said Asian Paints continued to add 2,000-3,000 dealers to its network every year, helping it maintain its lead over rivals.

While operating margins in the June 2016 quarter remained high (growing 21.4 per cent year-on-year), the firm has not hesitated to increase ad spends, despite a sharp focus on costs. Analysts say Asian Paints is expected to be visible strongly across media in the coming quarters as the festive and wedding season nears. This means, the firm will continue to keep its eye firmly on volume growth.