is likely to keep rising” thanks in large part to double-digit growth in its volume of paint sales, said Abhijeet Kundu, an analyst at Antique Stock Broking Ltd., who estimated the increase to be 15%-17% in the last quarter. “There are very few companies that are growing at that kind of rate.”
Asian Paints’s stellar performance is a contrast to its consumer peers. Titan Co Ltd., the country’s biggest jeweler, plunged 10% last week after nearly halving its growth guidance for the second half of the year. Srinivas Phatak, chief financial officer at Hindustan Unilever Ltd., India’s biggest consumer goods company, said “the demand outlook is definitely challenging” in an earnings call last month.
Consumer businesses are suffering in India as the economic expansion has slowed to a six-year low, exacerbated by a credit crunch amid a shadow banking crisis. Consumers have also tightened their belt as the unemployment rate hit the highest in 45 years. Even the recently concluded festival season doesn’t seem to have lifted spending by much, with shopkeepers reporting a poor show.
Defying weakening consumer confidence, Asian Paints’ net income has risen for two straight quarters to a record Rs 8.3 billion ($117 million) in the July-September period. Over the past 10 years, the firm has returned investors almost 1,000%, the third highest among stocks on the Sensex index.
To be sure, the company is not totally immune to the economic malaise. Its revenue growth has stalled this year, and an unexpectedly long rainy season also crimped demand. Asian Paints didn’t respond to emails and calls requesting comment.
Analysts say the weakness in revenue is due to price cuts and popularity of cheaper products rather than a substantial decline in demand.
For bulls, the company also stands out on management track record. Its decades-old tradition of prioritizing corporate governance, rare in a country that’s still dominated by family-run businesses, is valued by long-term investors.
Asian Paints is one of the rare companies in India that has always had a genuinely independent board, Saurabh Mukherjea, co-founder and chief investment officer at Marcellus Investment Managers, wrote in his book “The Unusual Billionaires.”
“If you want to build an institution where changes in the external or internal environment don’t matter, it has to start at the top with great corporate governance,” said Rakshit Ranjan, co-founder and fund manager at Marcellus. “I don’t think you could find 10 other companies in the country with the same level of corporate governance as Asian Paints.”