Asian Paints Q1 earnings update

Last updated: 24 Jul, 2020 | 12:13 pm

Asian Paints Q1 earnings update
  • Profit plunges: Asian Paints Q1 net profit came in 67% down on-year to ₹218.50 crore. Analysts had earlier anticipated earnings of about ₹90 crore. The company’s total income came in 43% down on-year to ₹2,923 crore, above street expectations. 
  • Lockdown effect: ‘After a washout in April, the Decorative Paints segment saw improving business conditions over the next two months in May and June.’{{tweet1}} Both the segments (Paints & Home Improvement) showed a massive decline in growth on QoQ basis.
  • Low raw material costs aid profit: Profitability across businesses was well supported by the benign raw material prices. Notably, crude oil derivatives are a key raw material in the paints business. They had seen an unprecedented crash in the month of March, going as low as $20 per barrel. 
  • Operating margins: Asian Paints’ operating margin declined to 16.5% in the first quarter from 22.7% a year ago. Analysts had earlier expected it to decline to 13.5%. The company’s operating profit fell 58% on-year to Rs 484 crore.

IND Analysis

The company was faced with slowing demand even before the pandemic, as consumers had cut discretionary spending. The outbreak had then halted all economic activity barring essential services starting the last week of March, crimping demand for industrial and household paints. However, the firm was able to protect its margins, thanks to softening raw material prices, and volume growth in May and June. The company said that while the quarter ended in negative territory, the business registered a healthy double-digit volume growth in the month of June’20 to end the quarter on a promising note. Going forward, complete recovery of demand still seems to be a few months away.  

Our VGQM model has a HOLD rating on the stock.

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