Asian Paints – A Sluggish December Quarter

Asian Paints announced its December 2013 quarter results. The results have been quite stagnant and the management categorically stated that global growth in calendar year 2013 was affected mainly by moderation in emerging market growth rates and recession in Euro Zone. Overall Commodity prices were marginally higher in the third quarter.

Considering this, we feel even the flat sort of results should also be considered good. Here the company posted a consolidated top-line of Rs 3451.92 crore and bottomline of Rs 329.35 crore as against Rs 3049.64 crore and Rs 335.23 Crore in December 2012. As stated by the management the stagnant markets and higher commodity prices were the prime factors behind the sluggish performance of the company.

As regards the performance of the various segments, in decorative segment double digit growth was registered in the quarter. Overall market remained challenging during the quarter. While the demand conditions improved in Oct’13, they were subdued in Nov’13. The company has announced a price increase of 2.1% wef Feb 1, 2014. Cumulative price increase for 9M-FY14 is around 4.1%. (1 stMay’13 – 1.2%, 1st Aug’13 - 1%, 1st Sept’13 - 1.8%)

In the industrial segment, Industrial Coatings (APPPG), business continued to be impacted by sluggish manufacturing environment in the economy, with no major capex activity. The automotive coatings JV was affected due to subdued demand in the automotive sector.

In the international segment, Middle East and Asia have done well. However, the business environment in countries like Egypt and Bangladesh continues to be marred by large scale disruptions arising from the political impasse.

The management has also updated regarding few of the developments in the quarter. Powder Coating Plant at Baddi was closed on 25th No v 2013 due to significant decline in the processing volume of powder coatings in the last two years. Going forward, demand for powder coatings will be catered by the facility at Sarigam in Gujarat. We do not expect any impact on the performance of the company.

As regards the outlook, the management has issued following statement. Going forward, the growth outlook is expected to be challenging. However, the pre-election spending may have a positive impact on the rural demand. Additionally, the good agriculture growth might also drive rural growth. Weak currency can continue to pose challenges on the margin front. Demand in the Auto and Non-Auto Industrial segments to remain challenging due to higher policy rates and investment slowdown give n the policy logjam. Internationally, political instability in countries like Egypt and Bangladesh would be a concern area.

We feel, though the results are flat, it is unlikely to impact the stock prices on the bourses. The company has managed to sustain the volume growth. As mentioned by the management, we expect some pre-election spending to boost the March quarter results. Investors can accumulate the stock at current levels.