Robust volume growth and lower input costs helped deliver better-than-expected results for the December quarter.
While the Asian Paints stock has performed better than the Sensex since October 2009 on the back of improving prospects, its outperformance in the last fortnight can be attributed to its better-than-expected quarterly results. Since January 25 (post-result), the stock has risen almost 9 per cent, as against the 4.4 per cent decline in Sensex.
For the December 2009 quarter, though, sales growth was largely in line with analysts’ expectations and operating and net profits were ahead of the Street’s estimates. The company’s standalone top-line growth of 26.8 per cent was aided by robust increase in volumes, driven by good demand in urban markets, Tier-II and Tier-III cities.
Operating profit margins galloped to 20.35 per cent compared to just 8 per cent in the December 2008 quarter. Consequently, operating profit jumped 223 per cent to Rs 260 crore. According to analysts, the gains were largely driven by a decline in the per unit cost of raw material, the benefits of which were not fully passed to customers.
It may be noted that the December 2008 quarter results were disappointing as raw material costs shot up 27 per cent (revenues were up just 10 per cent) due to higher prices of titanium dioxide. While the spurt in profit is partly due to the base effect, operating leverage added to margin gains. Net profit growth was slightly better at 256 per cent (Rs 178.7 crore), partially helped by a lower tax rate.
The company’s consolidated sales, too, grew a healthy 22.5 per cent to Rs 1,600 crore, while net profit jumped 236.5 per cent to Rs 198.6 crore for the December quarter.
The company management says it may be difficult to sustain margins. However, the company’s volume growth should be better than the industry, say analysts, who have upwardly revised their earnings estimate for 2010-11.
At Rs 1,933, the stock trades at 22 times estimated 2010-11 consolidated earnings and looks fairly valued. Looking ahead, it is expected it to perform in line with the markets.
