Higher oil prices smudge Asian Paints earnings palette

Higher oil prices smudge Asian Paints earnings palette
27/10/2018 , by , in ALLIED

Asian Paints reported a mixed set of earnings in Q2 FY19. Revenue came in-line with our expectation as the company delivered strong double-digit volume growth. However, profit declined as crude-related margin pressures became visible in the quarter gone by.

Consolidated net sales increased 9 percent year-on-year (YoY) to Rs 4,639 crore in Q2 FY19. Operating profit declined 2 percent to Rs 784 crore as margin reduced on account of inflationary cost pressures. Profit after tax declined 3 percent to Rs 498 crore.

Volume growth is estimated at 11 percent in the quarter gone by. A favourable base, along with higher demand from the emulsion segment, drove higher volumes. Demand was also impacted by a number of factors including a delayed festive season and a Goods and Service Tax (GST) rate reduction. Overall, the company delivered its third successive quarter of double-digit volume growth.

Sales growth was, however, lower than volume growth due to a change in product mix, permanent shutdown of Phthalic Anhydride plant (in Q2 FY18) and price revisions.The management has a cautious outlook as the weak monsoon has resulted in subdued rural demand. The demand uncertainty has also increased in the market in light of the upcoming elections.

While the domestic decorative business continues to do well, the industrial paints business witnessed strong growth in both the protective and powder coatings segment.

While domestic business seems on track, the international business (which constitutes around 10- 12 percent of total revenue) is facing challenging times.

Operations in Africa (Ethiopia and Egypt) and Middle East are facing some challenges on account of adverse currency fluctuations and increased competitive intensity.

Although the company has reported a pick-up in volume growth in the past three quarters, the management remains cautious as demand is yet to witness a broad-based recovery and competitive intensity continues to remain elevated.

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