 "Asian Paints: Revenue growth guided by recent price cuts")
On a day when the BSE Sensex fell one per cent, the stock of Asian Paints dropped 3.3 per cent on worries that adverse currency movement in some of its African markets such as Ethiopia and Egypt might impact the firm’s foreign operations. While the company recorded strong earnings growth in the third quarter (Q3) of FY16 after market hours, the stock might not see significant action on Tuesday given the cautious outlook.
Revenues in the December 2015 quarter at Rs 4,102 crore rose 14 per cent year-on-year (y-o-y), a tad ahead of estimates. This, despite demand from southern regions (mainly Chennai) being impacted to due floods in the quarter, indicates volume growth has been strong as the company had also taken price cuts in 2015. The firm’s operating profit at Rs 655 crore (up 37 per cent y-o-y) was in line with analyst estimates.
Net profit at Rs 463 crore was up 16.1 per cent y-o-y. The firm recognised impairment loss of Rs 52.5 crore due to acquisition of Sleek International in August 2013. Excluding for impairment losses, profit for the December quarter would have been Rs 515 crore. But, this pressure is likely to remain in the near-term. The acquisition of Sleek International continues to remain a drag on profitability in home improvement business as it recorded loss of Rs 12.8 crore despite 14 per cent growth in its segment revenues. Demand in this segment too remains sluggish.
While December quarter results were better than Street’s expectations, the management indicated a cautious outlook in its call with analysts. It does not anticipate any considerable change in domestic demand, while expecting its international business to see some near-term pressure as capex plans are put on the back burner in West Asia. Analysts, though, say replicating 10-14 per cent revenue growth won’t be a challenge for Asian Paints, though margins might come under pressure if the rupee continues to depreciate.
Revenues in the December 2015 quarter at Rs 4,102 crore rose 14 per cent year-on-year (y-o-y), a tad ahead of estimates. This, despite demand from southern regions (mainly Chennai) being impacted to due floods in the quarter, indicates volume growth has been strong as the company had also taken price cuts in 2015. The firm’s operating profit at Rs 655 crore (up 37 per cent y-o-y) was in line with analyst estimates.
Net profit at Rs 463 crore was up 16.1 per cent y-o-y. The firm recognised impairment loss of Rs 52.5 crore due to acquisition of Sleek International in August 2013. Excluding for impairment losses, profit for the December quarter would have been Rs 515 crore. But, this pressure is likely to remain in the near-term. The acquisition of Sleek International continues to remain a drag on profitability in home improvement business as it recorded loss of Rs 12.8 crore despite 14 per cent growth in its segment revenues. Demand in this segment too remains sluggish.
While December quarter results were better than Street’s expectations, the management indicated a cautious outlook in its call with analysts. It does not anticipate any considerable change in domestic demand, while expecting its international business to see some near-term pressure as capex plans are put on the back burner in West Asia. Analysts, though, say replicating 10-14 per cent revenue growth won’t be a challenge for Asian Paints, though margins might come under pressure if the rupee continues to depreciate.