Asian Paints Q2: Volume Up 6.4%, Gross Margin Down 339 bps
Asian Paints' decorative business in India grew volume by 6.4% in July to September 2026, in a quarter in which the company says it also took price rises; slide 24 of its deck puts its pricing at about 12% in standalone terms, without saying over which period. The standalone gross margin still fell to 40.3% from 43.7% a year earlier, and the company's own slide gives the reason as "steep inflation and lower price pass-through". The filings show customers staying through the price rises. They do not say how much of the cost the price recovered for good, and they do not say why pass-through was low.
MoatSCORE: 6.83 (read live on the Moat Screener on 30 Oct 2026, where it is labelled deep dive). It is provisional. Our deep dive on the company is here; the paint-industry context is in Paint Wars and Paint Wars II.
The idea in one sentence
A moat built on distribution is tested by volume, a moat built on pricing power is tested by margin, and Asian Paints' Q2 filings pass the first test and show the second one being paid for.
The fact that breaks the assumption
Consolidated net sales grew 16.9% to ₹9,953.9 crore. Consolidated PBDIT (profit before depreciation, interest, tax and other income) grew 3.6%, to ₹1,557.1 crore from ₹1,503.4 crore, and its margin fell 202 bps to 15.6% ([RS], press release, pages 1 and 2). Profit after tax after minority interest grew 7.5%.
The headline is sales; the number a moat reader needs is the gap between sales growth of 16.9% and PBDIT growth of 3.6%. On the standalone numbers the picture is the same: net sales up 14.8% to ₹8,423.6 crore, PBDIT up 5.9% to ₹1,440.3 crore, margin down 144 bps to 17.1%. The chief executive's own sentence in the release is that the company "calibrated price increases and absorbed part of the cost inflation to protect consumer demand in this challenging environment" ([RS], press release, page 1). The word to hold on to is "absorbed".
One concrete thing, followed: the cost-of-materials line
Take one line in one statement. In the audited standalone results, the cost of materials consumed was ₹4,140.60 crore in the quarter against ₹3,063.74 crore a year earlier, up 35.1% (our arithmetic), while revenue from sales rose 14.8% (our arithmetic: ₹8,423.62 crore against ₹7,335.85 crore) ([RS], standalone statement).
Add purchases of stock-in-trade and the change in inventories and total material cost was ₹5,027.74 crore against ₹4,129.46 crore, up 21.8% (our arithmetic), or 59.7% of revenue from sales against 56.3% (our arithmetic). One minus those ratios is the company's own gross margin: 40.3% and 43.7%. The statements rebuild the deck's number exactly, so the 339 bps is not a presentation choice.
The inventory line says why the cost kept arriving. Standalone inventories were ₹6,008.55 crore at 30 September against ₹4,824.74 crore at 31 March, up 24.5% (our arithmetic) ([RS], balance sheet). In the consolidated cash-flow statement, inventories absorbed ₹1,519.08 crore in the half-year where a year earlier they released ₹708.44 crore, and net cash from operating activities was ₹1,899.83 crore against ₹3,482.26 crore, down 45.4% (our arithmetic) ([RS], consolidated cash-flow statement). The company's slide 24 explains the sequence in its own words: "Gross margin moderated to 40.3% as higher-cost inventory flowed through after steep inflation in Q1 FY27".
The mechanism: volume is the distribution moat, margin is the bill
What held. Slide 14 is headed "Resilient Volume Growth Despite Steep Price Hikes and Festive Season Timing" and shows decorative volume growth of 6.4% in Q2 FY27, against 9.0% in Q1 and 10.9% in Q2 FY26 ([IP], slides 14 and 15; the filings do not say whether the decorative figures are standalone or consolidated). Value growth was 14.5%. On those two figures the arithmetic is 1.145 divided by 1.064, about 7.6% for price and mix together (our arithmetic). The deck says demand was "Broad-based demand across geographies; rural sustained its lead over urban this quarter", that the "Distribution footprint widened further, strengthening reach and depth across markets", and that new products contribute "~18% of overall revenues" ([IP], slide 17). Sizing the footprint is impossible from these filings: no dealer, depot or machine count is given.
What it cost. Slide 24, the standalone gross-margin trend, is the clearest page in the pack. Read with the quarter before it (the slide does not state the base or period of its percentages; the labels below are the slide's own, and any quarter-on-quarter reading is ours):
| Standalone, per [IP] slide 24 | Material cost, per the company | Price, per the company | Gross margin |
|---|---|---|---|
| Q4 FY26 | down about 1.4% | no change shown | 45.6% |
| Q1 FY27 | up about 25% | up about 7% | 43.8% |
| Q2 FY27 | up about 3% | up about 5% | 40.3% |
The slide's note says "Calibrated pricing interventions (~12%) partially offset the impact". The slide does not say what the ~12% is measured against or over which period; it equals the sum of the two price figures shown (about 7% and about 5%). In the company's words price only "partially" offset the material inflation, and the gross margin gave back the rest.
What held the PBDIT margin up. The gross margin fell 339 bps and PBDIT margin 144 bps, because the lines below gross margin shrank as a share of sales (standalone, as a percentage of revenue from sales, our arithmetic):
| Standalone, % of revenue from sales | Q2 FY27 | Q2 FY26 | Change |
|---|---|---|---|
| Material cost | 59.7 | 56.3 | +340 bps |
| Employee benefits | 7.1 | 7.3 | −20 bps |
| Other expenses | 16.5 | 18.2 | −167 bps |
| PBDIT margin (company-reported) | 17.1 | 18.5 | −144 bps |
Other expenses grew 4.3% (our arithmetic: ₹1,390.61 crore against ₹1,333.32 crore) while sales grew 14.8%. The filings carry that line as one number and name nothing inside it, so we cannot say whether it is advertising, freight, savings or timing. The deck says "Cost optimization initiatives offsetting part of the impact on Gross Margin" (slide 25) and the release says the company is "intensifying our cost-efficiency initiatives". Neither is sized.
Not only decorative paint. The squeeze shows in every part of the group that reports a profit line except Bath fittings ([RS], press release, page 3; [IP], slides 19, 20, 23):
| Consolidated unless stated | Net sales growth | Profit before tax | PBT margin change |
|---|---|---|---|
| International | +29.5% (+23.7% constant currency) | ₹52.7 crore, down 31.0% | −422 bps (4.8%) |
| Industrial, PPGAP | +33.7% | ₹112.9 crore, up 9.9% | −309 bps (14.2%) |
| Industrial, APPPG | +28.0% | ₹17.2 crore, down 33.4% | −425 bps (4.6%) |
| Home Décor, Bath | +18.5% | ₹8.7 crore against a ₹4.0 crore loss | turned positive |
| Home Décor, Kitchen | +13.0% | loss of ₹7.9 crore against ₹3.6 crore | wider loss |
Slide 20 is titled "Strong Industrial Growth Continues; Lower Pass-Through Dents Margins", and slide 23 says of international, "Entire impact of steep inflation felt during the quarter". Our reading: the cost shock was group-wide, the price response lagged it everywhere, and the group's growth in sales, led by industrial and international at near 30% or more, was bought at lower profit margins than a year earlier. Home Décor is about 4% of decorative revenue on slide 18; only Bath moved to profit.
Where this breaks
- It may be timing, not structure. The company's own explanation for Q2 is higher-cost inventory flowing through after the Q1 spike, and the chart shows material inflation of about 3% for the quarter against about 25% for Q1 (the slide does not state the base). If the shock has passed, the gross margin has room to recover as price catches up. The release points the other way: "With inflationary pressures showing little sign of easing, we are implementing a further round of staggered price increases", and the outlook on slide 28 says "Raw material inflation and supply chain volatility continue to weigh on gross margins". One quarter cannot say which reading is right.
- The volume figure is slowing, from a hard base. Decorative volume growth was 9.0% in Q1 and 6.4% in Q2, against 10.9% in Q2 FY26. Compounding the base and the quarter gives about 18.0% over two years (our arithmetic), so the demand is not weak. But the company's explanation, "Festive Season Timing" in the slide title, is not developed anywhere, and we cannot test it.
- Volume is not share. The filings state no market share and name no competitor. The outlook says "competitive intensity remains elevated, keeping the near-term operating environment challenging". Our reading is that this is why price was calibrated and not taken in full, but no document links "lower price pass-through" to competition. Our Paint Wars series records the competitors' own claims of share and network; this quarter's Asian Paints filings add none.
- Price and mix cannot be separated. The 7.6% price-and-mix figure and the company's roughly 5% of price for the quarter differ, and the gap could be premium mix or the decorative-versus-group difference between the figures. We cannot say which.
- A margin chosen is not a moat lost. If the company decided to protect volume ("to protect consumer demand") rather than margin, giving up gross margin for six points of volume growth is the moat being used, not failing. The quarter is consistent with that, and it is also consistent with a leader that could not take more price. The filings do not discriminate.
- Review, not audit, on consolidated; new auditor. The standalone results are audited; the consolidated results are reviewed. The review report gives the standard negative assurance ("nothing has come to our attention") and adds that the unreviewed results of 13 subsidiaries, which the auditors record as "not material to the Group" on management's information, leave the conclusion unmodified. The comparatives were audited and reviewed by the predecessor auditor, each with an unmodified opinion. Neither report is modified and neither contains an emphasis-of-matter paragraph.
- Strongest case against our thesis. The company grew volume, took price, kept the dividend payout ratio about where it was (21.4% in the half-year against 21.0%, slide 27), and commissioned a plant that, on slide 13, brings "Strong Margin Benefit on relevant products once Phase 2 is on-stream". If the moat is the ability to absorb a shock without losing the customer, this quarter is a pass. We think it passes the volume test and shows the margin test unfinished.
Why it costs the reader something
A reader who takes 16.9% net sales growth as proof of pricing power has counted the sales and skipped the cost: consolidated PBDIT rose 3.6%, and operating cash flow in the half-year fell by almost half on a stock build. A reader who takes the 339 bps gross-margin fall as proof the moat has gone has skipped that volume grew through a price round and that the company says the Q1 inventory is still in the numbers. What the filings support is narrower. The distribution test is passed in Q2; the pricing test is a work in progress that the company has marked as such.
What to watch
- Standalone gross margin in the December quarter against the 40.3% of this one, and whether the "~12%" of price grows with the further round the company announced.
- Decorative volume growth in the festive quarter against the 6.4% of Q2 and the base of 7.9% in Q3 FY26 (slide 14).
- Inventories and operating cash flow: ₹6,008.55 crore (standalone) of inventories at 30 September against ₹4,824.74 crore in March.
- The earnings-call transcript, when filed, for any price number, any competitor named, and the contents of "Other expenses". On 29 October the company filed only an intimation that the audio recording is on its website ([CR]).
The concrete thing, again
The cost-of-materials line says ₹4,140.60 crore against ₹3,063.74 crore while sales rose 14.8%. The customers took the volume at a higher price. The price did not cover the whole of the cost, and the gross margin stood at 40.3% against 43.7% a year ago. Until the company sizes its price, its savings and what sits inside other expenses, the filings prove the first half of that sentence and only outline the second.
Sources
- [RS] Asian Paints, results for the quarter and six months ended 30 Sep 2026, notes, auditors' reports, press release (NSE)
- [IP] Asian Paints, investor presentation, Q2 and H1 FY27 results (NSE)
- [CR] Asian Paints, intimation of the investor-conference audio recording (NSE)
- [DD] Does Asian Paints Have a Moat? The Filings Answer, [PW1] Paint Wars: Birla Opus Claims Third Place, [PW2] Paint Wars II, with How MoatSCORE works
Educational research, not investment advice. Every figure above is drawn from Asian Paints' own filings, read from the primary documents on 30 October 2026; derived figures are our arithmetic, labelled as such. MoatSCORE: 6.83 (read live on the Moat Screener on 30 Oct 2026, where it is labelled deep dive). It is provisional. No buy/sell recommendations, no price targets, no share prices. Moat & Margin is not a SEBI-registered Research Analyst or Investment Adviser.
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