Asian Paints – Still Painting A Better Picture

Asian Paints, which is India’s largest paint company and is also ranked in the top ten decorative coatings companies in the world, announced its June 2012 quarter results. As expected, the company has put in a better show with good topline and bottomline growth. Despite the cost pressures and competitive environment, the company has managed to post bottomline growth on YoY as well as QoQ basis. For June 2012, on a consolidated basis it posted topline of Rs 2,547.94 crore and bottomline of Rs 298.94 crore as against Rs 2,265.55 crore and Rs 271.59 crore in June 2011. The best part is that there is marginal growth on a sequential basis also in which the topline was up by 0.08 per cent. However, with the better margins, the bottomline growth was significant at 12.93 per cent.

Comparative Tables

Asian Paints has always been able to pass on the increasing cost to the end user and hence has managed to sustain the margins. The important factor is that it did not make any impact on the volumes front. In FY12 it had increased the price twice and still managed to put in a good double-digit volume growth.

On the margins front, the operating profit margins (OPM) have improved as compared to the March 2012 quarter. In June 2012 the OPM stood at 17.20 per cent - a significant up-move from the level of 15.40 per cent in March 2012. The best part is that it is almost equivalent to the June 2011 quarter. The June 2011 quarter margins were the best in the past six quarters. As the company has managed to put in similar margins, it is a positive factor. The net profit margins (NPM) for June 2012 stood at 11.70 per cent as compared to 10.40 per cent in March 2012 and 12 per cent in June 2011. So there has been improvement on the margins front.

Commenting on the performance, the management has stated, “The decorative paints business in India did well considering the challenging macro environment. We are witnessing a downward trend in the cost of raw materials but the depreciation of rupee remains a concern area.” Here we are of the opinion that the worst is behind in terms of rupee depreciation against the dollar and hence going ahead the scenario seems to be good for Asian Paints.

The management also mentioned that the auto and other industrial business saw some pressure due to subdued demand. However, these segments contribute less to the topline and hence the impact will not be very high. If we take a look at the business, the consolidated business of the company can be bifurcated into three major segments viz. decorative paints (81 per cent of revenues), international segment (13 per cent) and industrial paints (6 per cent). So with the industrial segment contributing just 6 per cent, the impact will be lower.

Going ahead, with the economic scenario expected to improve on both domestic as well as international front, we expect some pick-up in demand. Further, the management has stated that the capacity expansion to 2,00,000 KL per annum from 1,50,000 KL per annum at Rohtak (Haryana) was commissioned during the June 2012 quarter. Hence, along with the extended capacity, expected rise in demand and better improvement in margins, we expect Asian Paints to paint a better picture going ahead.