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Informist, Monday, Jul 15, 2024

 

By Rajesh Gajra

 

MUMBAI – The June quarter is likely to have been the second consecutive challenging one for Asian Paints Ltd, the largest paints maker in the country with significant overseas operations as well. Due to inflationary pressure, retail demand for premium decorative paints is expected to have been hit during the quarter.

 

Asian Paints' volumes are expected to have escaped a hit on the back of sustained demand for its economy range products. But sales realisation would have been weak due to pricing pressure from subdued domestic demand and competition from Grasim Industries Ltd, which started its paints operations recently. This would also be reflected in the company's bottomline for the quarter.

 

The overseas business of Asian Paints is not seen as having fared much better. The consolidated bottomline is therefore expected to be affected due to the challenging environment, both domestica and international.

 

For Apr-Jun, the company's consolidated net profit is seen at 14.14 bln rupees, 8.8% lower than a year ago and 12.6% higher than the previous quarter, according to the average of the estimates of eight brokerages. The consolidated net sales are pegged at 92.11 bln rupees, up 0.3% on year and 5.5% on quarter. The operating profit, or earnings before interest, tax, depreciation, and amortisation, is seen in the range of 18.32 bln rupees to 23.09 bln rupees, as per the estimates of six brokerages.

 

VOLUME DRAG

Brokerages differ in their expectations of Asian Paints' volume growth during the June quarter. While Motilal Oswal Financial Services expects the paint major's domestic volume to have risen 12% on year, Kotak Securities' Institutional Equities Research expects the figure to have been around 6%. Brokerage Prabhudas Lilladher expects Asian Paints to report 8% volume growth for the June quarter.

 

In the investor call following the company's March quarter earnings, Asian Paints' Managing Director and Chief Executive Officer Amit Syngle had said that the company aimed for double-digit growth in Apr-Jun. Syngle had said that there were signs of a resurgence in rural demand in the decorative paints market, but cautioned that the volume uptick would not lead to volumes growing in mid-teens. According to him, there was another factor of deferred demand from Jan-Mar that he said would flow into the June quarter.

 

Kotak Institutional Equities expects the company's gross margin to have expanded 60 bps on year to 43.5%, "aided by relatively stable and benign raw material price environment". Motilal Oswal Financial also estimates a 60 bps on-year increase in gross margin of Asian Paints, while Prabhudas Lilladher said the "benign commodity basket" would cause it to expand by 87 bps. The gross margin gains would, however, have been partly offset by "negative operating leverage and heightened A&P (advertising and promotional) spends", Kotak Institutional Equities said.

 

The company's adjusted bottomline is seen tracking the topline and operating profit. According to Kotak Institutional Equities, the "base (year ago) quarter benefitted from reversal of sick leave provisions".

 

Asian Paints will detail its Apr-Jun earnings on Wednesday and also hold an investor call following the results. According to Motilal Oswal Financial Services, the key point to watch for in the management commentary is the effect of "competition from new players". Analysts will be keen to know how much pricing pressure and volume impact the largest paints maker faced during the June quarter from new competition.

 

On Friday, shares of Asian Paints ended 0.8% lower at 2,999.15 rupees on the National Stock Exchange.

 

Following are the Apr-Jun consolidated earnings estimates of Asian Paints based on reports compiled by Informist from 8 brokerage houses:

 

Broker name	Net Sales	Net Profit	EBITDA
	-------(In mln rupees)-------
Anand Rathi Share and Stock Brokers Ltd	91,823	15,260	--
Elara Securities (India) Pvt Ltd	89,500	12,911	18,232
Kotak Institutional Equities	90,532	14,092	19,295
Motilal Oswal Financial Services Ltd	91,823	14,330	19,916
Nirmal Bang Equities Pvt Ltd	92,741	13,816	20,681
Nuvama Wealth Management Ltd	90,874	12,838	18,629
Prabhudas Lilladher Pvt Ltd	98,251	16,391	23,089
Sharekhan Ltd	91,350	13,520	--

 

Edited by Avishek Dutta

 

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