Asian Paints shares slip 2% ahead of Q1FY21 result; here's what to expect

June performed better than May as things began to normalise; however production levels are back to only 60-70 per cent, analysts note.

Shares of Asian Paints fell as much as 2 per cent on the BSE on Friday ahead of its June quarter results for the fiscal year 2020-21 (Q1FY21), due later in the day. 

At 10:06 am, the stock was quoting over 1 per cent lower at Rs 1,707.65 on the BSE. It hit a high and low of Rs 1,727 and Rs 1,691.50, respectively so far in the trade. In comparison, the S&P BSE Sensex was trading 0.55 per cent lower at 37,929 levels. 

For the April-June 2020 period, Asian Paints, analysts say, is expected to report a weak set of numbers as the Covid-19-triggered lockdown saw construction activities coming to a halt apart from the human migrant crisis (labor dislocation). That apart, early onset of the monsoon is also expected to dent the earnings. Although June performed better than May as things began to normalise; however production levels are back to only 60–70 per cent, they note. 

According to Edelweiss Securities, Asian Paints' revenue, earnings before interest, taxes, depreciation, and amortisation (EBITDA) and net profit would decline by 57.1 per cent YoY, 84.5 per cent YoY and 96.7 per cent YoY, respectively to Rs 2,190.4 crore, Rs 179.6 crore, and Rs 22.4 crore. For the quarter, "we expect the lockdown to affect the full month of April and part of May, leading to Asian Paints reporting a volume dip of nearly 52 per cent YoY on a base of 16 per cent YoY growth. Price cuts in the paints have been nearly 1 per cent YoY, but we believe the effective price cut taking into account lower realisation and discounts would be negative 6 per cent," it said. 

KR Choksey Securities expects sales to decline 58.7 per cent YoY and 54.5 per cent QoQ to Rs 2,109 crore. Volume decline will be mainly due to lockdown/social distancing and shortage of labour witnessed in April/May-20, the brokerage says. International revenues (which contributes nearly 12-13 per cent of total revenue) will also be hit due to global supply disruption and halt in exports. However, reduction in Brent crude oil and Titanium dioxide is likely to aid gross margin but negative operating leverage will lead to a substantial decline in EBITDA margin despite cost-cutting initiatives. It estimates net profit to decline 85.3 per cent YoY to Rs 96 crore.

Key monitorables include volume growth and price impact due to Covid-19, raw material price trends, inventory levels, rural demand outlook, new product launches and change in product mix, and strategies implemented to counter the pandemic impact.