Asian Paints treads carefully on price hikes as raw material costs squeeze margins

MUMBAI: Asian Paints Ltd faces a delicate pricing decision as raw material inflation eats into profitability: raise prices too aggressively and households could put off painting or switch to cheaper products; absorb too much of the increase and margins will come under further pressure.

The country’s largest paint maker is wary of passing on the full increase in input costs to consumers, managing director and chief executive Amit Syngle said.

Painting is a discretionary household expense, making demand particularly sensitive to price increases. Consumers could postpone maintenance and repainting or trade down to lower-priced products if inflation crosses a certain threshold, Syngle told analysts in a post-earnings interaction on Thursday.

“It's not a category which is every day used to that extent and therefore one of the levers which customers kind of really get into a bind is that at least the maintenance part of this thing can get deferred,” he said.

The pressure comes as paint makers grapple with higher raw material costs amid the West Asia war and volatility in crude-linked inputs. Passing on the full increase, Syngle indicated, is not a viable option if it risks disrupting consumer demand. “I don't think so it's reasonable to kind of look at passing the entire impact in terms of what we see currently.”

Asian Paints implemented a 7% price increase in the first quarter and about 5% in the second quarter, with the latest hike at 3.5%, Syngle said.

Margins take the hit

The pricing dilemma was reflected in Asian Paints’ September-quarter results of fiscal year 2027 (Q2FY27), which fell short of analyst expectations as a sharp increase in raw material costs linked to the West Asia conflict offset the benefit of double-digit revenue growth.

Consolidated net profit attributable to owners rose 7.5% year-on-year to ₹1,067.63 crore in the quarter ended 30 September, from ₹993.59 crore a year earlier, according to the company’s stock exchange filing. The figure missed the Bloomberg consensus estimate of ₹1,141.99 crore, based on 22 analyst estimates. Revenue from operations had increased 16.9% to ₹9,976.51 crore in the year-earlier period.

But operating profitability grew much more slowly. Consolidated profit before depreciation, interest, tax and other income (PBDIT) rose 3.6% to ₹1,557.1 crore from ₹1,503.4 crore a year earlier. The PBDIT margin contracted 202 basis points to 15.6% from 17.7%.

“The operating environment this year has been marked by sharp raw material inflation and material availability constraints driven by geopolitical disruptions, the full impact of which was felt in Q2. We calibrated price increases and absorbed part of the cost inflation to protect consumer demand in this challenging environment,” said Syngle.

Revenue growth remains intact, with volume growth and revenue growth broadly in line with expectations, said Manoj Menon, head of research at ICICI Securities. The industrial business has outperformed decorative paints, while Asian Paints’ decorative business appears to be performing in line with the industry, he said.

The pressure on gross margins appears to reflect a timing mismatch between price increases in the industrial and automotive segments. It is a temporary factor, and the company has clarified this, Menon said.

Competitive intensity has not prevented Asian Paints from raising prices in the decorative segment, and the company has recovered the absolute increase in costs, including in decorative paints, he added.

Asian Paints is the first major paint manufacturer to report September-quarter earnings. Kansai Nerolac and JSW Dulux are set to announce their earnings on 4 November, while Berger Paints is scheduled to report Q2 results on 5 November.

Shares of Asian Paints, which reported earnings during market hours, closed 0.6% higher at ₹2,298.70 apiece on Thursday. The benchmark Sensex rose 1.24%.

A calibrated approach

Syngle said demand likely picked up in October and was expected to sustain its momentum into November, supported by the extended festival season and the upcoming wedding season. But the company intends to remain cautious on pricing as it balances the need to recover higher costs against the risk of dampening demand.

“We would continue to kind of take a little bit of a calibrated view on pricing at the same time trying to balance the margins going forward so that basically we don't disrupt the consumer demand,” he said.

Menon said there were no significant signs of a demand slowdown in commentary from major consumer companies. Rural demand appeared stable, and companies had not flagged any major deterioration in the macroeconomic environment. However, further inflation and price increases could pose a risk.

“Consumers may be approaching the limit of what they can absorb, leaving companies with less room to raise prices without affecting demand,” he said.

Asian Paints is also counting on its newly commissioned vinyl acetate-ethylene (VAE) chemical input plant to help reduce costs, improve margins and develop differentiated products.

Syngle said the first phase of the project has been commissioned and formulations are already underway. The company expects to use part of the plant’s capacity by March 2027 and reach full utilization of 150,000 tonnes in FY28.

The facility is expected to support existing products through cost savings and greener formulations, while enabling new offerings, particularly in the premium segment. Syngle said the benefits could extend across product categories, strengthening the company’s ability to manage raw material inflation and build a competitive advantage.

Menon said backward integration could also help Asian Paints improve gross margins over the coming quarters. The company could use the savings either to protect profitability or invest in growth, giving it an advantage over competitors, he said.