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Informist, Thursday, Jan. 23, 2025

 

By Sunil Raghu

 

AHMEDABAD – The December quarter may be the fifth successive one that could see the colour green fade a bit more from Asian Paints Ltd.'s financial balance sheet in terms of growth in profitability and revenue.

 

The main culprit behind this is likely retail demand, particularly urban demand. Retail demand, hit by a prolonged and unseasonal monsoon in the September quarter, is said to have failed to see a big rise despite the festive season and Diwali in the Oct-Dec quarter. The other culprit is rising competition from other players in the segment, particularly the business house of the Birlas, who have pledged an investment of INR 100 billion, seeking to expand the distribution network and sell products cheaper than Asian Paints, which is the country's largest paints maker. They have already launched 129 products and propose to capture the high single-digit market share in the segment that they entered less than a year ago. All these factors don't paint a rosy picture for Asian Paints, which has dominated the industry for nearly eight decades now.

 

For Oct-Dec, the company's consolidated net profit is seen at INR 11.2 billion, 22.5% lower than a year ago, but 61.4% higher than the previous quarter, according to the average of estimates from 15 brokerages. Consolidated net sales are pegged at INR 88.6 billion, down 2.7% on year, but up 10.3% on quarter. Asian Paints had clocked a net profit of INR 6.9 billion on net sales of INR 80.3 billion in Jul-Sept, and a net profit of INR 14.5 billion on net sales of INR 91 billion in Oct-Dec 2023-24 (Apr-Mar).

 

Among the brokerages polled, Nomura Equity Research estimated the highest net profit for Asian Paints in Oct-Dec at INR 12.5 billion, while Nirmal Bang Equities Pvt. Ltd. estimated the lowest at INR 9.5 billion. For consolidated net sales, Anand Rathi Share and Stock Brokers Ltd. had the highest estimate of INR 91.9 billion, while Systematix Shares and Stocks (India) Ltd. had the lowest estimate at INR 85.9 billion.

 

The operating profit, or earnings before interest, tax, depreciation, and amortisation, is seen in the range of INR 14.8 billion to INR 17.9 billion, with the average being INR 16.3 billion, as per the estimates of 13 brokerages. The company clocked a consolidated EBITDA of INR 20.6 billion and consolidated EBITDA margin of 22.7% in the year-ago period.

 

Sharekhan sees domestic volume growth for discretionary products to be muted for yet another quarter due to "sluggish urban demand, a gradual recovery in rural demand and price hikes taken across categories". The brokerage, in its report, stated that prices of most key inputs, too, were high in Oct-Dec, which will affect gross margins. Further, a higher spend on advertisements and negative operating leverage would keep the operating margin lower on-year.

 

Another key brokerage, Kotak Institutional Equities Ltd., estimated a 4% year-on-year decline in standalone revenue for Asian Paints, largely domestic decorative paints, and flat volume growth compared to a 0.5?ll it saw in Jul-Sept. It also sees a 5.5% growth in subsidiaries, translating into a consolidated revenue decline of 2.7% on year for the company.

 

As per the brokerage's estimates, the consolidated gross margin for Asian Paints could fall 145 basis points on-year to 42.1%. This, even as the paints major's EBITDA margin could fall 410 basis points on-year to 18.5% due to negative operating leverage and heightened operating costs in light of increased competition.

 

Motilal Oswal, too, sees demand as weak in the December quarter and expects a 5?cline in revenue growth, with a marginal volume decline in domestic decorative paints. It sees the EBITDA margin declining 380 basis points on year and gross margins declining 210 basis points on year but rising 70 basis points on quarter, partially aided by the price hike taken by the company. Asian Paints will detail its Oct-Dec earnings on Feb. 4.

 

At 1046 IST, shares of Asian Paints traded 1.5% higher at INR 2,296.30 on the National Stock Exchange. At the current price, the stock is down about 10% from the levels seen at the end of Nov. 11, the next trading day after the company announced its September quarter earnings on Nov. 9, which was a Saturday. On Nov. 8, the stock had closed 2.7% lower from the day's open. On Nov. 11, it opened at INR 2,565.05, down 7.3%, and ended at INR 2,547.80, down 0.7%, after hitting a low of INR 2,506, down 2.3%.

 

Following are the Oct-Dec consolidated earnings estimates for Asian Paints based on reports from 15 brokerage firms in descending order by the estimate of net profit:

 

Broker name	Net Sales	Net Profit	EBITDA
	-------(In INR million)------
Nomura Equity Research	88,695	12,517	17,891
Anand Rathi Share and Stock Brokers Ltd	91,941	12,242	--
JM Financial Institutional Securities Pvt Ltd	90,301	11,984	17,180
Motilal Oswal Financial Services Ltd	86,479	11,697	16,215
HDFC Securities Ltd	89,000	11,600	17,000
Centrum Broking Ltd	89,210	11,305	16,530
Prabhudas Lilladher Pvt Ltd	90,576	11,277	16,938
Kotak Institutional Equities	88,536	11,276	16,390
Systematix Shares and Stocks (India) Ltd	85,853	11,215	16,570
Sharekhan Ltd	88,790	11,100	--
Axis Securities Ltd	88,300	10,970	16,370
Elara Securities (India) Pvt Ltd	87,474	10,633	15,718
KR Choksey Research	89,210	10,540	15,068
Nuvama Wealth Management Ltd	86,025	10,349	15,054
Nirmal Bang Equities Pvt Ltd	88,300	9,500	14,834
AVERAGE	88,579.33	11,213.67	16,289.08

 

 

Edited by Namrata Rao

 

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