Can you give me your opinion on the Q3 results of Asian Paints for Dec-21 quarter?

While the third quarter for Asian Paints was tough due to input cost spikes, it was still better than the Sep-21 quarter. The input cost spikes were caused by supply chain constraints and steep crude prices. Asian Paints also got some relief in Q3 as the input prices tapered sequentially, but were still higher on a yoy basis. Here is a financial summary of the performance of Asian Paints for the third quarter ended Dec-21.

For the Dec-21 quarter, Asian Paints reported 25.6% growth in sales revenues at Rs.8,527 crore on a yoy basis. There was good growth traction across its large division of paints manufacturing and also its smaller business division of home improvement solutions. Volumes continue to be robust with demand for paints picking up sharply in most of the sub-segments except automotive coatings. Volumes grew by 18% yoy for APIL.

I mentioned about automotive coatings business took taking a hit as most of the auto companies have been cutting down on production due to shortage of microchips. This hit auto demand for paints in the automotive coatings segment. However, the pick-up in housing demand means the OEM demand and the replacement demand remains robust for paints. APIL passed on some cost through rate hikes, but crude has been a depressant.

Not surprisingly, the operating profits were down due to cost pressures. For the Dec-21 quarter, the operating profits were down by -15.39% yoy at Rs.1,349 crore. This can broadly attributed to a very sharp spike in raw material and inventory costs, which is evident from the financial statements also. Crude is a key input for paints and that has spiked now to around $87/bbl and has been in a steep rally of over 30% since the start of December.

Operating margins of Asian Paints saw a sharp fall. EBITDA for the quarter fell by -13.7% to Rs.1,542 crore. Operating margins almost fell vertically from 23.49% in Dec-20 quarter to 15.82% in the Dec-21 quarter. However, the operating margins are 700 bps better on a sequential basis indicating that the cost pressures may have peaked in September and things should progressively improve from here on.

PAT fell -17.98% yoy at Rs.1,016 crore in the Dec-21 quarter. To a large extent, the pressure on operating profits got transmitted to the bottom line. On a yoy basis, the PAT margins fell from 18.24% in Dec-20 quarter to 11.91% in Dec-21 quarter. However, profit margin numbers were better sequentially. As India’s largest and most valuable paint company, Asian Paints has used its reach and distribution to improve performance sequentially.