Asian Paints shows all-round growth

Pick-up in growth of industrial paints likely to complement strong show in decorative paints

Asian Paints posted another quarter of strong growth and outpaced Street expectations on Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin and net profit fronts.

For the June quarter, it posted consolidated net sales of Rs 3,325 crore (up 18 per cent year-on-year), an Ebitda margin of 16.7 per cent (up 25 basis points) and net profit of Rs 339 crore (up 23.1 per cent). Bloomberg consensus estimates had pegged the sales at Rs 3,320 crore, Ebitda margin at 15.7 per cent and net profit at Rs 329 crore. Both sales and net profit growth were also better than that of its smaller peer - Kansai Nerolac.

  While the decorative paints segment (about 80 per cent of consolidated revenues) continued to drive results, led by double-digit volume growth of 11-12 per cent (in line with the trend in recent quarters) and a six-seven per cent price hike, the key highlight was pick-up in industrial paints.

Both automotive and industrial coatings (which fell in FY14) witnessed better volume growth. While the refinish and general industrial segments boosted performance of automotive coatings, industrial liquid paints and road-marking business fuelled the industrial coatings segment.

The management, too, remains confident. "Performance of industrial paints segment is likely to be better in FY15 as compared to FY14," it said. Analysts, too, echo this view. Abneesh Roy, associate director, institutional equities, research, Edelweiss Securities, says, "Asian Paints' non-automotive industrial paints segment has done well in this quarter. We expect the auto segment to improve gradually from here on, given the overall pick up in car sales."

Its international business put up a mixed show with the Caribbean, UAE, Singapore and Bangladesh doing well. However, Egypt remained under pressure due to political issues in the country and is a key monitorable. The business' margins though stood strong at six to seven per cent and company expects to maintain these levels. The management believes higher traction in Africa (where it is looking at an acquisition) and continued focus on key markets will make current margins more sustainable.

Soft raw material costs and better show by the industrial segment drove Ebitda margin in the quarter. Higher other income (up 70.7 per cent to Rs 47 crore), which aided bottom line, was driven by redemption of some long-tenure fixed maturity plans and might not be sustainable. The management expects demand in the domestic decorative segment to be strong.