Release Date: May 09, 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 strong double-digit volume growth for Q4 and FY '24, maintaining a consistent growth trajectory.
- The company's industrial business, including joint ventures with PPG of the U.S., has shown robust performance, contributing positively to overall growth.
- The Waterproofing business under the SmartCare brand has become a market leader, with a comprehensive product range developed in-house.
- Asian Paints Ltd (BOM:500820) has made significant strides in innovation, with over 126 patents filed and 60 granted, contributing to 11-12% of the top line.
- The company has expanded its retail network significantly, adding 40,000 to 45,000 retail points over the last three years, enhancing market penetration.
Negative Points
- Despite strong volume growth, the overall value growth was impacted by a 3.7% price decrease, resulting in a value decline of 1.8% for Q4.
- The Premium market segment showed slower growth, with some down-trading observed, particularly in rural areas.
- The Kitchen and Bath segments underperformed, with Q4 showing negative growth and overall annual performance being weak.
- The international business faced challenges, with the Nepal market continuing to struggle, impacting overall growth.
- Gross margins for Q4 were lower both year-over-year and sequentially, affected by the price decrease and increased marketing expenditures.
Q & A Highlights
Q: Congrats on double-digit volume growth despite the challenges. How should one think about volumes for FY '25? Can they accelerate from 10-plus percent levels to early to mid-teens levels?
A: Most of the points you mentioned are right. The rural uptick and the new Neo Bharat launch are strong points. While we aim for double-digit growth, it's difficult to say if it will be just about double-digit or mid-teens. The real test will be in Q2 and Q3. Historically, our CAGR has been around 14-15%, and we aim to maintain double-digit growth.
Q: Given the new launch at a distemper price point and rural recovery, should we revisit our assumptions on the difference between value and volume?
A: We have launched differentiated products across categories. The aim is to balance economic growth with growth in Premium and Luxury segments. We aim to maintain a 5-6% gap between value and volume, despite the price decrease this quarter.
Q: Despite price cuts and down trading, your sequential gross margins held up. How should one think about gross margins going forward?
A: Our guidance for PBDIT margins remains the same. Maintaining 18-20% PBDIT margins is crucial. The current geopolitical situation and crude price fluctuations will influence gross margins. We will react accordingly, but the commitment to maintain the guidance range remains.
Q: Given new competition, how are you reading the situation in terms of pricing and aggression levels?
A: The market is seasoned and has seen many new players. It's too early to say anything definitive. We believe in increasing the overall market pie rather than fighting over the same pie. We are not perturbed by the new competition.
Q: How do you retain dealer loyalty amidst new competition?
A: We use consumer influence as a strong tool. The consumer's consideration to buy is crucial. We invest heavily in brand equity and supply chain efficiencies. Dealer loyalties are difficult to shift due to the established trust and demand generation.
Q: What are the levers for maintaining EBITDA margins?
A: Key levers include our world-class supply chain model, economies of scale, sourcing and formulation efficiencies, and backward integration initiatives. These factors help us maintain our margin guidance.
Q: What steps are you taking to arrest down trading from Premium to Economy segments?
A: We focus on improving the value-for-money equation for consumers. For example, increasing coverage for Premium products to make them more attractive. The aim is to provide strong value at each price point to reduce the attraction of down trading.
Q: Can you give us a perspective on the margin benefit of manufacturing VAM in India versus importing?
A: Setting up a plant in India provides cost benefits and innovation in emulsion properties. This will add unique properties to the paint at a lower cost, boosting margins by 1-1.5%.
Q: What is your distribution strategy for this year?
A: We aim to improve retailer ROI by generating demand and improving capital rotation. We are leveraging AI for better forecasting and increasing order fill rates. We plan to add around 10,000 retail points this year.
Q: Can you provide guidance on ad spend and tinting machine count?
A: We are 3-3.5x ahead of the nearest competitor in tinting machines. Ad spend operates in a band of 3-5% of sales, depending on various factors, including disruptive work and below-the-line activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
