Asian Paints Q1FY21 results: Key highlights of the earnings concall

Asian Paints on July 24 reported a massive 66.7 percent year-on-year decline in net profit at Rs 218.45 crore for the quarter ended June 2020 due to lockdown, but overall earnings beat analyst estimates on business improvement in June. Revenue from operations in Q1 FY21 declined 42.7 percent to Rs 2,922.6 crore compared to the year-ago period.

Paints revenue during the quarter declined 42.6 percent to Rs 2,871 crore compared to the year-ago period and the segment's EBIT was down 65 percent YoY to Rs 371.6 crore and margin contracted 840 bps to 12.9 percent.

Here are the highlights from the company's Q1 FY21 earnings call, as compiled by Narnolia Financial Advisors

Management Participants: Amit Syngle- MD and CEO

The decorative business in India saw improvement in demand in May and June after complete washout in April. The Business picked up led by better demand conditions in Tier ll, Tier lll and Tier lV cities while urban and metros remained slow due to the higher impact of the pandemic. The company’s business achieved 80 percent of the base volumes in May and managed to grow by more than 14 percent in June, the management said.

At an overall level for the first quarter, the business was able to achieve 62 percent of the base of PY in volumes and 56 percent in value terms led by premium products and upgradations across markets and categories. The company’s foray into health & health and hygiene segment with Viroprotekt has helped to push Royal health shield (new variant which offers all surface anti-bacterial protection). Introduction of new sanitizing service has added to the company’s service brand, it said.

The company’s international business posted double-digit volume growth in June after negative growth in April and May. The company’s units in UAE and Africa posted good traction as the lockdown in these countries were lifted in April while Asia remained the most affected with Nepal being severely impacted due to lockdown in April and May and Ethiopia posting a low single-digit growth. The automotive coating JV (PPG-AP) continues to be remain affected due to COVID-19 coupled with a slowdown in the domestic automotive industry while the industrial coatings JV (AP-PPG) also remained impacted due to COVID-19 but are witnessing improving trends in June in both protective coatings and powder coating segments, the management added.

According to Asian Paints' management, both the segments in the Home Improvement category viz. the Kitchen (Sleek) and Bath business WAS impacted due to COVID-19 to the extent of 50 percent in terms of top-line versus previous corresponding quarter. Progress has been slower in this category. The softer material prices coupled with management's focus on cost-saving measures resulted in gross margin expansion for coating business in India as well in international markets.

Employee cost increased on account of increase in retirement liabilities during the quarter which is one time. Dealer expansion happened in the month of May and June. As per management, the customers are moving towards premium and value for money in the interiors segment than the luxurious segment in exteriors. The management expects growth trajectory in waterproofing will be better than painting in coming times.

The management does not expect much volatility in material prices in the next quarter. The company will focus on core strengths, cost rationalisation and cash conservation. The management expects demand from Tier ll, Tier lll and Tier IV cities to continue led by a good monsoon.