Asian Paints Q3 Preview: PAT seen up 8% YoY; quantity progress to choose up
Income progress modest amid weak pricing
Brokerages largely concur that income progress in Q3 is more likely to keep modest regardless of enhancing quantity momentum. Systematix expects volumes to develop round 10% year-on-year, however believes flattish web pricing and an unfavourable combine will cap topline enlargement.
Kotak Equities initiatives Asian Paints’ standalone income progress to sluggish to about 4% YoY from 5.6% within the September quarter, citing muted demand in ornamental paints and heightened aggressive depth.
Nuvama is extra cautious, estimating consolidated income progress of roughly 3.5% YoY, as pricing pressures persist as a result of sooner progress in lower-priced classes corresponding to putty and development chemical compounds, coupled with an hostile product combine. In distinction, Motilal Oswal forecasts comparatively stronger progress of round 6.5% YoY, supported by a weak base within the year-ago interval.
Volumes get better, however worth progress lags
Quantity progress is anticipated to be the important thing constructive in Q3. Most brokerages see home ornamental paint volumes rising within the excessive single digits to low double digits. Kotak Equities expects round 8% quantity progress, whereas Systematix pegs it nearer to 10%. Motilal Oswal is extra optimistic and expects home ornamental paint volumes to develop about 12% YoY.
Nevertheless, the hole between quantity and worth progress stays a priority. A number of brokerages spotlight downtrading by shoppers and a shift in direction of lower-priced merchandise, which is protecting pricing weak. Nuvama notes that destructive pricing and hostile combine proceed to weigh on worth progress, whilst volumes get better from final 12 months’s lows.
Margins set to enhance on benign uncooked supplies
The most important constructive within the quarter is more likely to be margin enlargement. Decrease crude oil and titanium dioxide costs, together with working leverage, are anticipated to help each gross and EBITDA margins.
Kotak Equities estimates consolidated gross margin at round 44%, up about 160 foundation factors YoY, aided by a benign uncooked materials atmosphere and sourcing efficiencies. It expects EBITDA margin to enhance to about 20%, up 90 foundation factors YoY, although partly offset by greater promoting and gross sales promotion spends.Systematix additionally expects margins to enhance on the again of decrease uncooked materials prices. Motilal Oswal forecasts gross margin enlargement of round 140 foundation factors YoY to about 43.8%, with EBITDA margin enhancing by roughly 70 foundation factors to round 19.8%.
Nuvama is barely extra optimistic on gross margins, anticipating an enchancment of over 200 foundation factors YoY to about 44.5%.
Subsidiaries and B2B present help
Subsidiary efficiency is anticipated to stay regular, however not a serious progress driver. Kotak Equities fashions low single-digit YoY progress for subsidiaries, just like the September quarter. Nuvama highlights that whereas demand for exterior paints slowed as a result of unseasonal rains in October, that is largely deferred demand that would shift to This fall.
On the constructive aspect, the B2B section is anticipated to develop in double digits, supported by authorities capital expenditure and infrastructure exercise. This might partially offset weak spot in sure retail segments.
What to observe in Q3
Administration commentary on demand revival, aggressive depth, pricing technique, and the sustainability of margin good points shall be key.
(Disclaimer: Suggestions, solutions, views and opinions given by the specialists are their very own. These don’t symbolize the views of Financial Occasions)
