Asian Paints tanks 15% in 3 days, nears 52-week low on margin worries

Shares of Asian Paints witnessed heavy selling pressure and were down 6 per cent at Rs 2,692.75 on the BSE in Friday’s intra-day trade, falling as much as 15 per cent in past three trading sessions on margin concerns amid rising crude oil prices. The stock of the India’s largest paint company quoted at its lowest level since March 2021. The stock had hit a 52-week low of Rs 2,343.85 on March 15, 2021.

The steep and unprecedented inflationary trend in raw material prices continued to impact the gross margins, which shrank 833 bps year-on-year (YoY) to 36.8 per cent, across businesses of the company in October-December quarter (Q3FY22) quarter.

Consolidated revenue grew 25.6 per cent YoY, while EBITDA/ PAT declined 13.7 per cent/ 18.0 per cent, driven by 18 per cent YoY volume growth in the domestic decorative segment. International Business registered a 9 per cent YoY value growth and was impacted by sluggish market conditions in most of the units in Middle East and specific challenges like civil unrest in Ethiopia and forex crisis in Sri Lanka, Asian Paints had said while announcing Q3 results on January 20, 2022.

Inflation in commodity prices and, more specifically, in input materials in the company product segments across geographies, has risen significantly since the last quarter of FY2020-21, and continues to be on the uptrend. The challenges to business posed by this inflationary pressure and the uncertain market conditions, would place strong emphasis on managing the business in a dynamic manner and altering operational priorities to suit the changing market conditions, Asian Paints said in FY21 annual report.

While sales growth was impressive in Q3FY22, even on a reasonably high base of the previous year, it remains to be seen how the company will fare on the demand front in subsequent quarters – especially as festive demand drivers would no longer be at play and the sales growth base is even more challenging going forward, the brokerage firm Motilal Oswal Financial Services said.

The Q4 (January-March) quarter demand is likely to be impacted by higher base and slow offtake by dealers due to various Covid led restrictions. The company expects pent up demand in Q1FY23E post easing of lockdown restrictions. The long term growth drivers such as shortening of repainting cycles and strong recovery in the real estate sector are expected to help drive future demand of decorative paints, analysts at ICICI Securities said in Q3 result update.