Asian Paints Q2 Preview | Volume growth may lift revenue, inflation to weigh on margins

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Asian Paints, one of the largest paint companies in India, is expected to see more than 20 percent growth in sales volume for the quarter ended September 2021 due to a pent-up demand in rural as well as urban areas and market share gains, which ultimately could boost revenue for the quarter.

The stock registered 25 percent gains since the start of financial year FY22 and gained 6-odd percent from July. Now, whether the stock can extend gains post earnings or could be hit by expected margin pressure, will be watched out closely.

“We expect 34 percent and 30 percent YoY growth in volumes and value respectively in domestic decorative paints aided by (1) some pent-up demand, (2) share gains from unorganised players as well as organised players and (3) strong growth momentum in waterproofing,” said Kotak Institutional Equities. “We expect 5.7 percent YoY growth in subsidiary revenues.”

Sharekhan said pent-up demand and recovery in the real estate sector will help Asian Paints to clock volume growth of above 20 percent in Q2FY22. “The company may continue to post market share gains in key markets.”

KRChoksey Research expects international revenues (around 12-13 percent of revenue) to remain subdued due to global supply chain disruption and lesser demand in foreign countries.

Profit for the quarter is likely to see a 6-12 percent growth due to pressure in margin on account of higher input prices. Experts largely expect around 500 bps YoY contraction in gross margin as the Brent crude prices increased to $78.52 a barrel from $75.13 a barrel during the quarter and gained more than 30 percent since the start of FY22, though the company has taken a price hike in first half of FY22. 100 basis points is one percentage.

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“We expect 530 bps YoY contraction (up 70 bps QoQ) in gross margin led by raw material inflation, partly offset by about 4-5 percent price increase taken starting May 2021. We expect lower decline (down 414 bps YoY) in EBITDA margin partly aided by operating leverage,” said Kotak.

Prabhudas Lilladher feels that despite taking a price increase of around 7 percent during the first half of FY22, the gross margin is expected to contract 540 bps to 39 percent due to inflation in key raw material prices. “We expect an EBITDA margin of 18 percent, down 560 bps YoY”.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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