Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Asian Paints Ltd (BOM:500820, Financial) reported a healthy volume growth of 7% despite challenging market conditions.
- The company's five-year CAGR remains strong at 15.3%, indicating consistent long-term growth.
- New product initiatives, such as the Neo Bharat Latex paint, have performed well, particularly in the bottom-of-the-pyramid segment.
- The industrial segment, especially auto refinishes and auto OE business, showed double-digit revenue growth.
- Expansion in distribution footprint to 1.65 lakh retail touchpoints and the addition of new stores in the home decor segment are positive indicators for future growth.
Negative Points
- The overall value growth experienced a decline of 3%, reflecting pressure on pricing and product mix.
- International operations faced challenges, with a top-line degrowth of 2% due to currency depreciation in markets like Ethiopia, Egypt, and Bangladesh.
- Employee costs have increased significantly, impacting overall profitability.
- The economy emulsions segment underperformed, affecting the overall product mix.
- Gross margins have declined to 42.9%, down from the previous quarter, due to material price inflation and an inferior product mix.
Q & A Highlights
Q: My first question is regarding the sharp increase in staff costs, which are up 23% year-over-year and 9% quarter-on-quarter. What is driving this increase?
A: (Amit Syngle, CEO) The increase in staff costs is primarily due to the addition of new employees to expand our distribution footprint and support new categories like waterproofing and the bottom of the pyramid segment. Additionally, there was a correction in our sick leave policy, which also contributed to the higher costs.
Q: What is your outlook on the real estate sector and its impact on your kitchen and bath business?
A: (Amit Syngle, CEO) The real estate sector has shown some signs of slowing down, particularly in new projects. However, the premium and luxury segments are still performing well. Our kitchen and bath business has seen improvements due to better servicing, new designs, and premiumization. We expect stronger growth in our B2B business, supported by government infrastructure projects and factory expansions.
Q: Can you provide an update on your volume growth guidance for the remaining quarters of FY25?
A: (Amit Syngle, CEO) We are targeting double-digit volume growth for the remaining quarters, driven by improved demand conditions, particularly in rural areas and the upcoming festive season. We expect the gap between volume and value growth to be around 5% to 6%, aided by price increases to offset inflation.
Q: How are you managing the impact of inflation on your gross margins?
A: (Amit Syngle, CEO) We have taken a 1% price increase in July and anticipate further price increases to manage the expected 1.5% inflation in the second quarter. Our pricing decisions are based on maintaining our margins rather than matching competition.
Q: What are the key factors driving the increase in employee costs and other expenditures?
A: (Amit Syngle, CEO) The increase in employee costs is due to the addition of new employees to support our growth strategy and expand our distribution footprint. Other expenditures have also increased due to investments in new categories and expanding retail points. We aim to balance these costs with value growth going forward.
Q: Can you elaborate on the performance of different product segments, particularly the economy emulsions?
A: (Amit Syngle, CEO) The bottom of the pyramid segment, including distempers and Neo Bharat, has performed well. However, economy emulsions and certain undercoats like primers have not done well. Premium and luxury emulsions have shown decent growth but could perform better in terms of value.
Q: What is the status of your home decor business and its impact on overall growth?
A: (Amit Syngle, CEO) We are adding 15 to 20 new stores each year and have introduced new categories like automated blinds. Our home decor initiatives are aimed at enhancing the core paint category by owning the home decor lifecycle. We are bullish on this category and expect it to contribute significantly to our growth.
Q: What are your closing remarks on the overall performance and outlook for the next quarter?
A: (Amit Syngle, CEO) We are looking forward to a much better quarter ahead, driven by improved demand conditions, particularly in rural areas and the upcoming festive season. We are committed to maintaining our margins and driving growth across all categories.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
