 "Asian Paints: Price cuts aid volumes")
Asian Paints reported in-line numbers for the March quarter (Q4). Healthy volume growth, estimated at 12-13 per cent, in the domestic decorative paints segment, with continued improvement in industrial paints demand aided revenue. Even if the low base is adjusted for, the uptick is healthy. Analysts say revenues were driven by higher growth in the economy paints segment over premium paints. Consolidated revenues grew 12.3 per cent over year to Rs 3,919 crore versus Bloomberg consensus estimate of Rs 3,860 crore. Though volumes are largely driven by price cuts and the low base helped, the uptick is noteworthy given the challenging environment. A good monsoon, pay commission hike as well as ‘one rank one pension’ could act as catalysts. The firm remains cautiously optimistic.
Margins could continue to benefit from input cost tailwinds, though further price cuts could offset some gains, say analysts. Also, rising oil prices and investments in newer businesses could contain margins. Given the continued slowdown, Asian Paints' strategy of boosting volumes and keeping margins makes sense, especially in the wake of competition from unorganised players.
Home improvement business grew 21.4 per cent in Q4 to Rs 72 crore. These businesses continue to be in the investment phase and, hence, posted loss of Rs 15 crore in Q4. Asian Paints plans to leverage its strong distribution to cross-sell these products. Its international business (19 per cent of revenues) grew at a steady clip of 16.2 per cent, driven by continued traction in West Asia, Ethiopia, and Bangladesh.
The Asian Paints stock currently trades at rich valuations of 40 times FY17 estimated earnings. But, most analysts remain positive on the company given that it stands to gain from growing demand of paints in the country and expect its earnings to grow at a healthy pace. They are also enthused by the company's entry into the adhesives segment and will keenly watch out for the management strategy on growing this business.
Margins could continue to benefit from input cost tailwinds, though further price cuts could offset some gains, say analysts. Also, rising oil prices and investments in newer businesses could contain margins. Given the continued slowdown, Asian Paints' strategy of boosting volumes and keeping margins makes sense, especially in the wake of competition from unorganised players.
Home improvement business grew 21.4 per cent in Q4 to Rs 72 crore. These businesses continue to be in the investment phase and, hence, posted loss of Rs 15 crore in Q4. Asian Paints plans to leverage its strong distribution to cross-sell these products. Its international business (19 per cent of revenues) grew at a steady clip of 16.2 per cent, driven by continued traction in West Asia, Ethiopia, and Bangladesh.
The Asian Paints stock currently trades at rich valuations of 40 times FY17 estimated earnings. But, most analysts remain positive on the company given that it stands to gain from growing demand of paints in the country and expect its earnings to grow at a healthy pace. They are also enthused by the company's entry into the adhesives segment and will keenly watch out for the management strategy on growing this business.