homebusiness Newscompanies NewsAsian Paints rises on robust results but Street is wary of high inflation and competition
Asian Paints rises on robust results but Street is wary of high inflation and competition
Asian Paints share price was quoting at Rs 3,140.25 on BSE at 11.52 am, rising 1.05 percent, after opening at Rs 3,138. The stock price had gained over 15 percent this month so far and trades at 58 times the price-to-earnings ratio of its FY24 estimate.
Asian Paints shares traded positive on Wednesday a day after the paint manufacturer announced impressive results for the April-June period. India's leader in the decorative paints segment saw strong consumer demand, catapulting its sales by more than 54 percent to Rs 8,607 crore against Rs 5,585.4 core in the first quarter of last year. A CNBC-TV18 poll had estimated sales to come in at Rs 7,540 crore.
Asian Paints profit after tax (PAT) came in at Rs 1,036 crore, jumping over 80 percent from Rs 574.3 crore last year during the same period. A CNBC-TV18 poll had estimated a PAT of Rs 875 crore.
Asian Paints margin rose over 18 percent amid persisting inflation in raw material input costs. In fact, paint companies such as Asian Paints are facing a double whammy of higher crude oil costs and rupee depreciation. A key raw material for paint companies is crude oil’s derivative titanium dioxide (TIO2) and a higher price for it hurts the profit margins of paint manufacturers. The depreciation in the rupee against the US dollar further raises the cost of imports.
Inflation headwinds
To protect margins, Asian Paints has already raised the prices of its products by more than 7 percent so far this year, which came on top of an almost 17 percent hike from last year since May.
Asian Paints volume growth at around 34-35 percent is one of the highest in the last six quarters. Asian Paints also saw strong sales of over 120 percent at Rs 118 crore in its bath fitting sales and its kitchen business sales grew over 68 percent to Rs 109 crore.
"The domestic decorative business experienced good consumer demand and recorded stellar revenue growth for the quarter. The volume growth registered in the quarter is one of the highest in the last six quarters. The business also registered robust four-year compounded growth in volume and value terms," said Amit Syngle, Managing Director and CEO, Asian Paints.
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Brokerage calls
Among brokerages, Morgan Stanley has reduced its target on Asian Paints to Rs 2,674 with an 'underweight' call as the global brokerage sees near-term inflationary headwinds along with the changing industry dynamics and lower margin as challenges.
Global brokerage Credit Suisse has set a target of Rs 3,800 on Asian Pains stock with an 'outperform' rating saying the demand trends remain robust and the company is looking to fortify its dominant position with a focus on double-digit volumes. However, it noted that the concerns over competition (read Grasim) are valid.
Citi has set a target or Rs 3,400 with a neutral call and raised its earnings estimates by 10-12 percent.
Another overhang on Asian Paints is the entry of Grasim into the paints business with its mega CAPEX plan that many in the Street believe could be the sector's disruptive moment.
Speaking to CNBC-TV18, Syngle said that ‘new players won’t be able to impact the market by just virtue of capex’.
“Today, the industry is pegged at about Rs 60,000 crores and I think in the next five years, the industry is going to go to about Rs 80,000 crore overall. What we see is that actually there is no correlation of capex with sales to that extent and sales is something which you have to earn by really working around your distribution, your supply chain retailers brand, your influences, and so on, so forth. So it is a hard task.”
He added, ‘don’t think new players will be able to gain market share just by reducing prices’
Asian Paints share price was quoting at Rs 3,140.25 on BSE at 11.52 am, rising 1.05 percent, after opening at Rs 3,138. The stock price had gained over 15 percent this month so far and trades at 58 times the price-to-earnings ratio of its FY24 estimate.
First Published: Jul 27, 2022 12:21 PM IST
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