Asian Paints’ Disappointing Quarter Sends Share Prices Tumbling
[[Asian Paints]], a leading paint company, saw its share price drop almost 5% on Wednesday after reporting weak third-quarter earnings. The company’s profits fell by 23% to Rs 1,110 crore in the October-December period, mainly due to poor festive demand and a slowdown in urban areas.
Weak Demand and Slowdown in Urban Centers Impact Performance
The company’s revenue also decreased by 6.1% to Rs 8,549 crore compared to the same period last year. The festive season usually brings in strong sales, but this year, the demand was much lower than expected, especially in cities. This impacted the company’s overall performance.
Margins Shrink Under Pressure
Asian Paints’ margins, a key measure of profitability, also suffered. They fell from 22.6% to 19.1% due to a less profitable product mix and higher sales and distribution costs. Earnings before interest, taxes, depreciation, and amortization (EBITDA) also went down by 20.4% to Rs 1,637 crore.
Analysts Trim Projections, Maintain ‘Sell’ Rating
Analysts are not optimistic about the near future. Citi, a financial services company, lowered its earnings projections for Asian Paints and maintained its ‘sell’ rating on the stock. They believe the demand will likely remain weak, and the slowdown in urban areas will continue.
Competition Heats Up, Adding to Pressure
The paint [[market]] is becoming increasingly competitive, with companies fighting for market share, skilled employees, and shelf space in stores. This competition, along with the weak demand in urban areas, is likely to put further pressure on Asian Paints’ margins and earnings. There are also concerns about mergers and acquisitions in the industry, which could further intensify competition and lead to rating downgrades for the company.
Volume Growth and Guidance
According to company executives, volume growth was a mere 1.6%, while value growth was negative at 1.7%. Despite the challenges, the company maintains its goal of double-digit volume growth in the decorative business, aiming for an EBITDA margin of 18-20% and single-digit volume growth overall.
Urban Slowdown and Price Hikes to Persist
The company expects the impact of recent price increases to continue into the next quarter. Additionally, the management believes that the slowdown in urban demand will likely persist, further impacting the company’s performance.
Share Price Performance
Asian Paints’ share price fell almost 5% to Rs 2,237 during early trading on Wednesday. The stock has declined by 22% over the past year and 0.9% since the beginning of this year. Analysts’ opinions on the stock are mixed, with some recommending a ‘buy’, others a ‘hold’, and many suggesting a ‘sell’.