Asian Paints Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Volume growth hit 12%, the headline number: Decorative business delivered a very strong quarter, with T3/T4 rural markets showing early recovery and luxury products also logging double-digit volume growth.
• Home Décor is now a material, multi-category business: Asian Paints is the number one player in decorative lighting, wallpapers and textures, and the number two in fabrics; the target is to take this segment from ~4% of decorative turnover to 8–10%.
• Gross margins are at multi-year highs: Gross margins touched one of their highest levels in the last ~4 years, aided by a deflationary raw material trend that management expects to continue into Q4.
• The Bath and Kitchen businesses are still a drag: Kitchen was flat and Bath de-growth narrowed to ~5% from 10–15%, but both are being revamped under the Beautiful Homes umbrella and remain a work in progress.
• What to watch next quarter: Whether the double-digit volume momentum sustains through the election season, the pace of raw material deflation, and any concrete turnaround in the Bath and Kitchen segments.

Decorative Business & Volume Momentum

• Volume growth was broad-based: The 12% volume growth in Q3 was driven by a recovery in T3/T4 cities, strong Projects Institutional business, and Industrial growth from Auto OE and General Industrial.
• Rural recovery showed up: After stress noted last quarter, T3/T4 markets recovered, with growth rates now almost equivalent to T1/T2 cities.
• Product mix shifted at both ends: The economy range surged on the back of the rural recovery, while luxury products also saw double-digit volume growth; premium products grew at a slower pace.
• The Projects business outpaced retail: Growth in the Projects Institutional segment was significantly higher than retail, driven by builders, factories and government work, with the company claiming ~80% representation in marquee projects like airports, metro and parliament.
• A price decrease of ~1.3% partly explains the value-volume gap: Net of this, value growth was close to 7.5–8%, and management does not view price cuts as a demand creator, calling the impact more psychological in smaller towns.
• The latter-half weakness was relative: Management clarified that the softness seen after the festive season was relative to the very strong Diwali upsurge and does not take away from the double-digit volume growth.

Syngle: "This double-digit trajectory is very clear in terms of what we are seeing in the Decorative business."

Home Décor: The Second Engine

• The ambition is to double the revenue contribution: Management wants to take the Home Décor business from ~4% of decorative turnover to 8–10% over time, calling it a difficult but sure path that no other paint industry competitor has followed.
• Market leadership is already claimed in multiple categories: Asian Paints is now the number one decorative lighting brand, number one in wallpapers and textures, and number two in fabrics and furnishings, making it the only integrated national-level Home Décor player in a fragmented market.
• Beautiful Homes stores are the physical anchor: The company now has 54 Beautiful Homes stores, of which 35–40 have achieved ROI and are profitable for both the organization and the retailer, with a payback period of 2.5–3 years.
• New launches are treated like a fashion brand: The company plans a continuous cadence of launches with seasonal collections, including recent introductions like Royale Wardrobes and the Lotus 25 hydrophobic coating for Bath.
• uPVC windows and doors are doubling: This business is in expansion stage, deploying money on overheads and people, and has been doubling in scale.

Management: "We have seen that there is no other competition in terms of the paint industry who has followed suit. This is a difficult path ahead, but it is something which is a sure path."

Bath & Kitchen: The Problem Children

• Kitchen was flat but broke even: After two weak quarters, the Kitchen business was flat in Q3 and achieved PBT neutrality for the first time, making a little money.
• Bath de-growth narrowed but remains negative: The Bath business had been logging negative growth of 10–15% in prior quarters; this quarter de-growth reduced to ~5%, but management acknowledged there is still a lot of work to prop up the category.
• Both are being revamped under Beautiful Homes: The strategy is to integrate Kitchen and Bath into the broader Home Décor umbrella, using Beautiful Homes as the delivery vehicle, rather than running them as standalone categories.

Syngle: "We are looking at the whole area of décor under one roof as a very big strategy, as part of which Beautiful Homes is becoming a vehicle in terms of how we want to deliver this entire area going forward."

Innovation & Competitive Moat

• New products contribute ~12% of revenue: Over seven years, the company has launched ~280 new products with chemistries described as new to the world, not just new to India, and management claims competition has no equivalent products.
• 30–40% of the portfolio is differentiated: Properties like anti-crack coating, waterproofing for damp surfaces, textures and décor are offerings competition cannot match, and the company is now the largest wallpaper player in the country.
• Flash targets the unorganized French Polish market: The newly launched Flash product addresses the manual lakh dana spirit market, described as an untapped ocean, as part of a strategy to bring unorganized customers into the organized sector from the bottom of the pyramid.
• Mechanization is being democratized: The company is moving from brushing and rolling to spraying technology, incorporating Indian sprayers to make mechanized painting accessible to a larger set of consumers.
• Painting services are a global-scale differentiator: The service, rechristened from Safe Painting Service to Beautiful Homes Painting Service, is claimed to be the largest painting service offered by any player globally.

Management: "We have just introduced this product called 'Flash', which takes care of the entire French Polish market, which is the manual 'lakh dana' spirit kind of market which exists, which is like an untapped ocean."

Industrial & International

• Industrial business outperformed: Auto OE delivered double-digit value growth with PBT margins at their highest levels, while APPPG General Industrial has doubled its business in three years and continued double-digit growth.
• International was flat with pockets of stress: AP Global posted flat growth; depreciation in Egypt and Bangladesh weighed, Asia remained weak, and Nepal was a major headwind. Profitability improved due to margin expansion and partial deflation.
• A Qatar entity is being set up: The company is establishing its own operation in Qatar, having previously supplied through a distributor, to supply and service the market better.

Margins, Costs & Capex

• Gross margins are at multi-year highs: Gross margins touched one of their highest levels in the last ~4 years, supported by a deflationary raw material environment.
• Raw material deflation is expected to continue: Management expects raw material prices to come down further in Q4, driven by decreasing global consumption as larger economies slow and two wars persist.
• PBDIT margin guidance is maintained at 18–20%: The company plans to deploy higher money on marketing and above-the-line spends for brand building within this band.
• Capex commitment is substantial: By year-end, the company would have committed about ₹2,000 crores into brownfield expansion and backward integration, including a cement project by December 2025 and a VAM project around April–May 2026.
• Brownfield expansions are complete: Khandala and Kasna expansions have been completed, adding ~1,20,000 KL per annum of capacity.

Syngle: "While there are geopolitical situations, I think given the fact that the larger economies are not growing, there are two wars which are going on, we feel that from a point of view of consumption at a global level, the consumption would decrease, which would kick off deflation, in terms of the prices."

Guidance & Commitments

Key Metrics