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Informist, Thursday, Oct. 17, 2024

 

By Sunil Raghu

 

AHMEDABAD – The September quarter is likely to be the third successive challenging quarter for Asian Paints Ltd., the country's largest paint maker. A prolonged monsoon season reduced retail demand for premium decorative paints during the quarter.

 

 

The subdued demand and pricing pressure led to weaker sales realisations and this could be reflected in Asian Paints' bottom line for the quarter. However, sustained demand for products in the economy range may have saved overall volumes from taking a dip.

 

For Jul-Sept, the company's consolidated net profit is seen at INR 10.99 billion, 8.79% lower than a year ago and 6.03% lower than in the previous quarter, according to the average of the estimates of 12 brokerages. The consolidated net sales are pegged at INR 86.63 billion, up 2.18% on year and down 3.42% on quarter. Asian Paints had clocked a net profit of INR 11.7 billion on net sales of INR 89.7 billion in Apr-Jun, and a net profit of INR 12.05 billion on net sales of INR 84.79 billion in Jul-Sept last year.

 

Among the brokerages polled, Centrum Broking Ltd estimated the highest net profit for Asian Paints in Jul-Sept at INR 12.26 billion, while Sharekhan Ltd estimated the lowest at INR 10.26 billion. For Asian Paints' consolidated net sales in Jul-Sept, Centrum Broking Ltd's estimate was the highest at INR 90.3 billion, while Axis Securities Ltd had the lowest estimate of INR 84.48billion.

 

The company's operating profit, or earnings before interest, tax, depreciation, and amortisation, is seen in the range of INR 14.93 billion to INR 17.44 billion, with the average being INR 16.10 billion, as per the estimates of 10 brokerages. The company had clocked consolidated EBITDA of INR 17.16 billion and a consolidated EBITDA margin of 20.3% in the year-ago period.

 

Centrum Broking, which is on the bullish end of the estimates, expects Asian Paints to report 6.5% growth in net sales in Jul-Sept. It feels this rise in net sales would be driven by 13% volume growth in domestic decorative paints. In a pre-earnings report, Centrum Broking said its channel checks showed that demand in Jul-Aug saw an uptick despite the monsoon season.

 

However, it also saw limited value growth due to fewer government tenders and budget constraints, which affected premium sales momentum. Elevated discounting and geopolitical tensions are expected to have impacted the margins of Asian Paints in the September quarter. Centrum Broking expects the company's EBITDA to fall 1% on year, with adjusted net profit flat.

 

Axis Securities expects Asian Paints' EBITDA margin to contract due to a high base from a year ago and higher promotional expenditure.

 

Sharekhan Ltd expects Asian Paints to achieve lower revenue growth of 2-6%. It expects 1% on-year growth in the standalone domestic business, 7% on-year growth in the international business, and mid-teens on-year growth in subsidiaries, resulting in 2% growth in the consolidated revenue. The domestic decorative paints business is likely to post 5% volume growth.

 

It expects Asian Paints' gross margin to decline 60 basis points. Higher employee expenses and advertising spends could further lead to a 280-basis-point on-year decline in the operating margin.

 

The company's adjusted net profit is expected to be in line with the operating profit due to muted revenue growth and negative operating leverage, and the adjusted profit after tax is likely to decline 15% on year.

 

Asian Paints will detail its Jul-Sept earnings on Wednesday.

 

According to analysts, for Asian Paints, which had hiked prices of paints 1?rly this month, the key points to watch for in the management's commentary will be the demand outlook from metros, tier-II and tier-III towns, the outlook on raw materials, margins, pricing actions, and competitive intensity.

 

On Wednesday, shares of Asian Paints closed 0.5% higher at INR 3082.10 on the National Stock Exchange.

 

Following are the Jul-Sept consolidated earnings estimates of Asian Paints based on reports compiled by Informist from 12 brokerage houses:

 

Brokerage firm	Net sales	Net profit	EBITDA
	-------(In INR million)-------
Anand Rathi Share and Stock Brokers Ltd	85,210	10,513	--
Antique Stock Broking LTd	86,481	11,149	16,002
Axis Securities Ltd	84,480	10,300	14,930
Centrum Broking Ltd	90,297	12,258	16,988
Elara Securities (India) Pvt Ltd	87,534	11,116	16,081
Kotak Institutional Equities	84,545	10,505	15,142
KR Choksey Research	89,949	12,201	17,435
Motilal Oswal Financial Services LTd	85,210	10,760	15,028
Nirmal Bang Equities Pvt Ltd	87,329	11,232	17,029
Nuvama Wealth Management Ltd	84,909	10,646	15,453
Prabhudas Lilladher Pvt Ltd	86,905	10,993	16,773
Sharekhan Ltd	86,750	10,260	--
AVERAGE	86,633.24	10,994.42	16,086.10

 

Edited by Avishek Dutta

 

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