Asian Paints: Profits jump 20% but slowdown in the economy hits company’s volume

Bavadharini KS BL Research Bureau | Updated on January 22, 2020

The decorative segment, which contributes to 70 per cent of the company’s revenue, reported low double digit volume growth.   -  THE HINDU

Paint-maker reports ₹5,131-crore revenue in the December quarter

Asian Paints, one of the country’s largest paint markers, posted a 20 per cent higher consolidated net profit of ₹672 crore in the quarter ended December 31, 2019 as raw material costs were lower (about 8 per cent y-o-y) due to lower crude oil prices. It was also helped by lower tax outgo compared to the same period last year.

Revenue growth was subdued as its mainstay decorative segment saw sales impacted by the overall consumption-led slowdown in the economy during the period. The company reported revenue of ₹5,131 crore, a growth of 3 per cent y-o-y in the recent quarter. The company’s stock ended 2 per cent at ₹1,773.

The decorative segment, which contributes to 70 per cent of the company’s revenue, reported low double digit volume growth. Industrial segments continued to be impacted by the slowdown in the automobile industry. But the impact was largely offset by the volume growth from decorative segment.

The operating margin of the company improved by 100 basis points to 22 per cent in the December quarter 2019 aided by lower raw materials costs.

Economy products continue to drive growth

The promotional and marketing initiatives taken by the company, expansion to newer market and market share gains from unorganised sector have paid off well for decorative paints segment.

Asian Paints’ focus on economy products including putty, distemper and economy paints has helped it report double-digit revenue growth in the decorative segment. This, along with good pricing power and softening of crude oil prices, helped the company’s performance during the quarter.

Crude oil is one of the key ingredients for raw materials such as titanium dioxide, zinc oxide and solvents and additives. For the December quarter 2019, raw material costs (as a percentage of sales) stood at 43 per cent, about 8 percentage points lower than last year same period.

While crude prices had been volatile in the recent months, particularly with tensions in West Asia, it is still at around $63 per barrel, lower than what it was in the beginning of FY20 ($69 per barrel).

Going ahead, any sharp rise in crude prices could have an impact on the company’s margins. Also, passing of price hikes in the economy products to protect margins could be difficult.

Published on January 22, 2020

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