Asian Paints is expected to report massive decline in all earnings parameters for the quarter ended June 2020 as COVID-19-led lockdown hit sales in key months. Numbers will be announced on July 24.
According to brokerages, profit is likely to fall around 98 percent year-on-year as well as on sequential basis as revenue could decline more than 60 percent though lower oil prices could support gross margin.
"April and May are key months for painting activities in India. Store closures and non-availability of labour coupled with people becoming cautious due to social distancing will significantly impact sales volumes. We expect sales volume to be down by around 52 percent. Some recovery was seen in rural markets and tier-III towns at fag-end of the quarter," said Sharekhan which sees 60 percent decline in revenue YoY.
Kotak Institutional Equities, which modelled 57 percent YoY decline in domestic decorative volumes, expects 98 percent fall in Q1 FY21 profit and 61 percent in revenue compared to year-ago quarter.
"We model negative 8 percent price/mix in view of continued change in product mix led by higher sales of economy products. Net outcome: 65 percent decline in domestic decorative sales (standalone) in Q1FY21. Overall decline in international business revenues would be lower due to less stringent lockdown in Indonesia and MENA region as compared to India; we model 45 percent decline in overseas sales (subsidiaries)," said the brokerage.
At operating level, Asian Paints is expected to report around 80 percent decline in earnings before interest, tax, depreciation and amortisation (EBITDA) and more than 1,000 points fall in margin in June quarter YoY, hit by lower operating leverage.
"Gross expansion of 570 bps YoY was due to sharp decline in crude price as Tio2 prices were down 7.7 percent YoY in Q1FY21," said Motilal Oswal which sees 1,250 bps decline in EBITDA margin and 84 percent fall in EBITDA YoY.
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Sharekhan feels though gross margins are expected to remain high due to benign crude prices, lower operating leverage would drag down OPM to 9.5 percent in Q1FY21 as against 22.5 percent in Q1FY20.
Commentary on post-lockdown recovery would be key thing to watch out for.
The stock price remained volatile after hitting March lows due to COVID-19-led sell-off across equity markets. It gained 1.2 percent during June quarter, but lost 3.2 percent year-to-date.
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