India’s largest paint player Asian Paints is set to report its earnings show for the quarter ended June on July 29. However, muted urban demand, high competition and high operating costs could dampen the company's performance.
According to a Moneycontrol poll of 7 brokerages, Asian Paints is likely to report a 0.8 percent on-year fall in revenue to Rs 8,905 crore, down from Rs 8,970 crore reported during the same time last year.
Net profit is likely to fall 6 percent on-year to Rs 1,099 crore, down from Rs 1,170 crore from the corresponding quarter last year.
Estimates of analysts polled by Moneycontrol are shown to be in a narrow range, meaning any positive or negative surprises may elicit a sharp reaction in the stock price. Among the brokerages polled, Motilal Oswal rolled out the most bullish projections while Nuvama Institutional Equities forecasted the slowest growth for Asian Paints.
What factors are driving the earnings?
Sales and volumes are likely to be poor this quarter, as a broad-based slowdown in consumption continued to weigh on sentiment. Further, a premature monsoon also dampened expectations.
Urban Slowdown
"The growth remains muted, as demand conditions has not seen any meaningful improvement from prior quarters, particularly in urban markets," said Kotak Institutional Equities. The brokerage added, "We anticipate some uplift in price/mix, partly supported by price hikes implemented over the past year (a cumulative increase of one percent over the last nine months)."
Nuvama Institutional Equities added, "Demand remained challenging in urban while rural shall continue to improve gradually. However, we expect B2B to grow in double digits due to promising capital outlay."
The brokerage added that it estimates Asian Paints shall grow slower than peer Berger Paints as the former dominates big cities, which are facing the brunt of the slowdown. "However, we anticipate a slight sequential improvement."
Volumes
Brokerages said that a slight improvement in volumes is likely on a sequential basis, even though competitive intensity remains high. According to Motilal Oswal, volume growth is expected to be 7 percent in domestic decorative paints. The gap in volume and value growth is due to
downtrading.
Margins
Gross margins are likely to expand to 43.5-43.9 percent, according to brokerages, as a result of benign raw material environment. However, this will be partly weighed down by increased trade spends and an unfavourable mix.
The EBITDA margin is expected between 18.5 percent and 19 percent, as gross margin expansion was partly offset by negative operating leverage and higher operating costs amid intensified competition.
What to look out for in the quarterly show?
The raw material prices and their impact on margins will also be watched, along with increasing competitive intensity. Further, there will be a close watch on any commentary on price hikes and narrowing gap between volume and value growth.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
