Asian Paints Q3 results: Revenue from operations, meanwhile rose 26% to ₹8,527 crore for the reporting period
Asian Paints Q3 profit falls 18%; margins take a hit on higher input costs
Asian Paints Ltd on Thursday reported a consolidated net profit of ₹1,015 crore for the December quarter, a fall of 18% from ₹1,238 crore reported in the same quarter last year.
The profit figures saw a steep jump owing to the low base of last year.
Revenue from operations, meanwhile rose 26% to ₹8,527 crore for the reporting period as against ₹6,788 crore in the last year period.
On a year-to-date basis, shares of the company have gained over 14% till date, while the benchmark BSE Sensex has advanced 9% during the same period.
Amit Syngle, MD & CEO said, “Profitability across businesses was well supported by the softer raw material prices & the various cost control measures being actively pursued by the management,”
“After a complete shutdown in April 2020 due to extended lockdown, the Decorative business segment witnessed improving business conditions over the next 2 months. Thus, the business registered a healthy volume growth in the month of June 2020.
Company’s other business segments in India including the two industrial coatings business & both the segments in the Home Improvement category also witnessed.
Paints revenue during the quarter down 42.6 % to Rs 2,871 cr. compared to year-ago period & the segment’s EBIT was decreased 65 percent to Rs 371.6 cr. and margin contracted 840 bps to 12.9 % YoY.
Look, Overall earnings were also largely supported by lower other and tax cost (down 75.5 % YoY) for the quarter.
Sharekhan holds a ‘Buy’ call on Asian Paints with a target price of Rs 3,550. “Gradual softening of input prices, price increase of 3-4%, better product mix and supply efficiencies would help ease out gross margin pressure. Overall, we expect Asian Paints’ revenue to grow in strong double digits in the near to medium term, while the consolidated operating profit margin is expected to stand at 21% in FY2024.”
Further, management of the company expects double-digit volume growth momentum in decorative paints to sustain for the medium term, driven by 1) strong growth in Tier-3 and Tier-4 markets (as consumers are shifting to branded products and upgrading to emulsions from distempers), 2) expansion in a product portfolio that creates more options for urban consumers to improve their homes and 3) waterproofing and undercoats gaining strong traction due to lower quality of construction. This will be well supported by the home improvement business, which is focusing largely on complete home décor play. Moreover, industrial and automotive paints are expected to see a strong recovery in demand in the coming quarters.
On the other hand, YES Securities added that the stock has seen a strong outperformance and is now trading at an all-time high valuation multiple of 68 times FY23 and 59 times FY24 consensus earnings. While the strong demand outlook in the near term and pricing actions driving margin recovery can help sustain premium valuations, there is limited room for positive surprises from here.
“Further rise in material inflation and margin dilution due to diversification could be risks to an otherwise flawless execution story. Given limited absolute upside, we don’t recommend aggressive buying at current levels,” the brokerage said.