Asian Paints rallies 7% post March quarter results; stock top Sensex gainer

Shares of Asian Paints, the leading paint manufacturer, surged over 7 per cent on the BSE on Wednesday, a day after the company reported its March quarter results for the financial year 2020-21 (FY21). The stock was the top gainer on the S&P BSE Sensex.

At 11:15 am, the stock was ruling 7 per cent higher at Rs 1,802. The stock had hit a 52-week high of Rs 1,915.90 on March 9, 2020 while its 52-week low stands at Rs 1,291.45, touched on July 7, 2019. 

For the quarter under review, the paint company posted a profit before tax (PBT) of Rs 699 crore on a consolidated basis, down 5.68 per cent year-on-year (YoY). Its net profit or profit after tax (PAT) stood at Rs 461.89 crore, down 2 per cent from Rs 471.65 crore logged in the corresponding quarter of the previous fiscal. 

Revenue from operations of the company slipped 7 per cent to Rs 4,635.59 crore while total income came in at Rs 4,691.39 crore, down 7 per cent from Rs 5,048.71 crore reported in the March quarter of FY19. 

Segment-wise, revenues from Paints vertical declined 7 per cent to Rs 4,532.88 crore, while Home Improvement business logged a revenue of Rs 102.71 crore, down 13.7 per cent from the year-ago quarter. 

For the fiscal year ended March 2020, consolidated revenue from operations increased by 5 per cent to Rs 20,211.25 crore while net profit for the year increased 25.5 per cent to Rs 2,705.17 crore. 

“Loss of sales due to the lockdown in March’20 impacted the Decorative business segment in an otherwise strong quarter with double-digit volume growth in the first two months of the quarter. Even with the loss of sales, the Decorative business segment in a tough year has registered double-digit volume growth for the year and strong profit numbers," Asian Paints said in a press release.

What brokerages say

Analysts at Edelweiss Securities expect the company's decorative volumes to sustain riding potential demand shift from the unorganised segment (nearly 30 per cent). "This, coupled with the company's capability to hike prices, should help maintain margin. We maintain ‘BUY/SO’ with TP of Rs 1,910. At CMP, the stock is trading at 52.9x FY22E EPS," they wrote in a report dated June 23. 

Prabhudas Lilladher notes that Asian Paints reported low single-digit volume growth as lockdown impacted performance in 4Q. "Near-term volume pressures are likely to sustain as Metros and Tier 1 cities (which constitutes 40-50 per cent of volumes) remain under severe pressure due to Covid 19 impact," it said.

The brokerage further says that slowdown in real estate and guidelines on construction activity will impact sales in the near term. 

However, despite these challenges, it remains positive on the structural growth story of the company due to its product portfolio, huge scope in entry-level paints, and success of new products at 15-20 per cent lower prices. The brokerage has an "Accumulate" rating on the stock with the target price of Rs 1,722.