Asian Paints keeps its 18-20% margin guidance after a 17% quarter

Asian Paints' sales rose 14.9% in the September 2026 quarter from a year earlier, but its operating profit, which is earnings before depreciation, interest, tax and other income, rose only 6.0%. Its operating margin fell to 17.0% from 18.5%, a drop of 1.4 percentage points calculated from the filed standalone results. The company's own version of the measure, which it calls PBDIT margin, fell by about as much. Even so, management again said it expects to keep the margin within its 18-20% band for the full year, as it had in July. The guidance has not moved, but what holds it up has.

The gap between sales and profit is about costs. A paint maker buys pigments, emulsions, solvents and packaging, and the chief executive, Amit Syngle, said the company had raised prices by about 7% in the quarter before and about 5% last quarter without covering the full rise in those costs, a position he thinks much of the industry shares. Net profit grew almost as fast as sales, but mainly because other income, which comes from outside the paint business, rose by more than operating profit did.

Management's answer is that the quarter is seasonal and its product mix different, and should not be read against the one before it. The filed results give that some support. Over the past nine quarters, only the same quarter two years earlier had a lower margin, at 16.1%. On the company's chosen yardstick the year is also intact so far: the margin for the first six months was 19.6%, up from 18.9% a year earlier.

That half-year figure leans on the first quarter, whose margin of 21.9% was helped by raw materials and finished stock bought before costs rose. In July, asked how large that help was, management said it was difficult to put a number on. At the same time it had warned that dearer raw-material stock carried into the second quarter would weigh partly on that quarter's margin.

For the rest of the year the company is counting on price, timing and thrift. It has announced a further increase of about 3.5% from November, which Mr Syngle said already allows for an anti-dumping duty on titanium dioxide, the white pigment in most paint, that took effect on 24 October. He put the duty's possible effect at 2% to 3%. He also expects the current quarter to benefit from a longer Diwali falling in November, a better product mix and savings from a cost programme. The price rise depends on painters and households accepting it in a market where, he said, competitors face the same squeeze.

The slower lever is a plant. In September the company started the first phase of its facility for VAE, an emulsion used as a raw material in water-based paint, inside the first-half window it gave in May, though a month after the August start it pointed to in July. Mr Syngle said the plant could give a cost advantage of 3 to 5 percentage points when it works at full potential, but he now ties that to an extension of the first phase and much of a second phase, and agreed that the company might spend the saving on marketing rather than keep it as margin.

The balance sheet is consistent with the plant entering service, though the tables do not name the project: capital work in progress shrank, fixed assets grew by a similar amount and borrowings rose over the six months. The full-year guidance therefore stands on a first half that cheap stock flattered, a price rise customers have yet to absorb and a plant whose full saving depends on a later phase.