Asian Paints Q2 results preview: Rupee fall, crude price may hit margins

Most brokerages expect the paint maker to report 8-10 per cent volume growth, but there also are some that see more upside.

India's leading paint company Asian Paints will on Monday report its earnings for the September FY19 quarter. In the previous quarter, the company had reported a 31 per cent year-on-year (YoY) surge in net profit to Rs 5.58 billion. Its revenue had risen 15 per cent on a yearly basis to Rs 43.91 billion.

On a year-to-date (YTD) basis, the company’s stock has risen 6 per cent, compared with a 1 per cent rise in the S&P BSE Sensex.

For Q2FY19, most brokerages expect the paint maker to report 8-10 per cent volume growth, but there also are others that see more upside. Prabhudas Lilladher, for instance, says demand improvement after a reduction in the GST rate might enable a double-digit volume growth for the company. Kotak Securities sees 12 per cent volume growth for the quarter under preview. On the contrary, Motilal Oswal Securities expects the company to report mid-single-digit volume growth in its domestic decorative business. Brokerages ICICI Securities and Emkay Global see 8 per cent growth.

Earnings before interest, depreciation and amortisation (Ebitda) margin is likely to take a hit owing to the depreciation of the rupee and rising crude oil prices. "Operating margins are likely to contract by 50 basis points (bps) to 18.3 per cent, with Ebitda growing 7.1 per cent YoY in 2QFY19," says Motilal Oswal Securities.

ICICI Securities says Asian Paints is likely to see muted sales growth of nearly 3 per cent YoY to Rs 43.90 billion in Q2FY19. "We believe a decline in realisation of nearly 5 per cent YoY would be largely on account of GST rate cut," it says. Other brokerages, however, see double-digit growth. Prabhudas Lilladher expects a 13 per cent YoY revenue growth to Rs 26,955 million.

The Mumbai-headquartered company is expected to post a 3.8 per cent YoY rise in adjusted PAT (profit after tax) to Rs 5,460 million, according to Motilal Oswal Securities. Emkay Global Securities, Prabhudas Lilladher and Kotak Securities expect double-digit growth as well. On the other hand, ICICI Securities says PAT would decline nearly 8 per cent YoY to Rs 4.86 billion.

Key monitorables to watch out for in Asian Paints results today include volume growth trends and demand scenario in urban and rural geographies, market share trends, outlook for raw materials/pricing actions and commentary on GST-led price reductions.