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With improved demand , Asian Paints reported solid earnings growth during the first quarter of FY19.
Healthy growth in the decorative and industrial segments meant that the company’s June quarter numbers were ahead of market expectations.
The company has retained its leadership in the decorative segment, which contributes over 75 per cent of its revenue.
In the June period, Asian Paints’ revenue increased 15 per cent (net of excise) y-o-y to ₹4,398 crore, while net profit rose 30 per cent YoY to ₹571 crore from ₹441 crore last year.
The core segment, decorative paints, registered double-digit volume growth due to greater traction in the affordable housing category.
On the industrial front, the automotive coatings segment witnessed good growth due to the robust performance in the two-wheeler and commercial vehicles segments. The cost of raw material (largely crude derivatives) for the company (as a percentage of sales) increased to 55 per cent with the continued increase in crude oil prices.
Price hike
To cushion its margins, Asian Paints took a price hike of 1.9 per cent in May. The operating margin improved to 20 per cent in the recent quarter, an increase of two percentage points YoY.
Asian Paints had taken a 1.4 per cent price increase across its products in March 2018.
Going ahead, the prediction of normal monsoon augurs well for the company.
The GST rate reduction to 18 per cent from 28 per cent is also likely to help the company’s earnings in the coming quarters.
However, the continuous increase in raw materials prices may dampen the margins.
The construction of two new manufacturing plants in Visakhapatnam and Mysuru are progressing as per schedule and are likely to be operational in September 2018 and January (2019).
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