Earnings Outlook: Cost spike to curtail Asian Paints' margin growth

23 Jul 2022

A low base and volume increase are seen aiding Asian Paints Ltd’s topline growth in the June quarter, but high input costs would likely curtain operating margin expansion and rein in the bottomline.

The consolidated net profit of Asian Paints is seen at 8.7 bln rupees according to an average of estimates by five brokerage firms. It is 52% higher than the consolidated net profit a year ago and 2% higher than that in the previous quarter.

The consolidated net sales is expected at 76.1 bln rupees, up 36% on the year and down 4% on the quarter.

The company will declare its results for the June quarter on Tuesday.

Asian Paints’ sustained focus on economy-end products, market share gains, and price hikes will likely lead to a 35% on-the-year growth in domestic volume, said brokerage Kotak Institutional Equities in a preview report.

The company’s revenue growth will be driven by price hikes in the decorative paints segment, according to brokerage IDBI Capital Market Services.

The brokerage said that an 64% on-the-year rise in the price of key raw material crude dioxide and an 18% increase in price of another raw material titanium dioxide will likely have limited Asian Paint’s operating margin expansion to 17.1% in Apr-Jun from 16.34% a year ago.

Brokerage Axis Securities said the operating margin would likely have expanded by 100 bps “on account of cost efficiencies and some respite in supply chain cost.”

The brokerage said that the key factors to monitor from Asian Paints’ earnings are the company’s outlook on demand in metro cities and tier 2 and tier 3 towns ahead of the festive season, its pricing actions and its outlook on raw material costs.