17 Nov , 2021 By : Kanchan Joshi
NEW DELHI : It is no news that Asian Paints Ltd has been battling severe cost inflation and its strategy of taking slow price hikes became a sore point for its investors. But there is some relief for investors on this front. According to analysts at Edelweiss Securities Ltd, the market leader in decorative paints is taking another round of price hike in the month from 5 December.
"Our sense is that the latest hike is 4–5%. This would bring the total hike to around 19% year-on-year (y-o-y)," said the Edelweiss report dated 16 November. Investors would reckon that Asian Paints saw robust volumes growth of 34% in the September quarter. However, its gross margins contracted by a severe 970 basis points y-o-y as prices of key input material titanium dioxide and other crude-based monomers remain elevated . One basis point is one hundredth of a percentage point.
Asian Paints took a 4% price increase in Q2FY22 on a 6% sequential raw material cost increase during the September quarter. Dealers channel checks by various brokerages showed that the company had raised prices in October by around 5-6 percent across various products.
Reacting to this development, shares of the company rose around 3% intraday on the NSE on Wednesday. Usually, peers follow Asian Paints when it comes to taking prices hikes. So, in that sense, this bodes well not only for investors in Asian Paints, but for those having exposure in other paint stocks as well.
Going ahead, what also remains to be seen is the impact of price increases on the industry's volumes growth, especially now that new companies are entering this sector.
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