Asian Paints margins pressure to ease going ahead
The company intends to take a price hike to offset raw material pressure that impacted margins in Q2
Shares of India’s largest paint company Asian Paints opened lower on Friday by 1.39% at Rs 2,960 after the company reported disappointing results for the September quarter. The consolidated net profit of the company saw a steep decline of 28.2% to Rs 595.96 crore in Q2 FY22 as compared to Rs 830.37 crore posted in Q2 FY21. The paint maker’s revenue from operations increased by 32.6% to Rs 7,096 crore in Q2 FY22 from Rs 5350.23 crore posted in Q2 FY21. Profit before tax declined by 27.8% to Rs 826.24 crore in Q2 FY22 over Q2 FY21.
Meanwhile, the board of directors have approved payment of an interim dividend of Rs 3.65 per equity share. The record date for the purpose of payment of the interim dividend is fixed as 29th October 2021.
At the operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) declined 28.5% year-on-year to Rs 904.4 crore and margin contracted by 1,085 bps to 12.75% in Q2FY22, hit by the higher raw material prices. One percent is equal to 100 basis points.
“Steep inflation seen in raw material prices, since the beginning of this calendar year, has been phenomenal and has impacted gross margins across all businesses in the quarter,” said Amit Syngle, Managing Director & CEO.
With such dismal performance here is what brokerages have to say about the Q2 results and the company.
Jefferies | Rating: Underperform | Price target: Rs 2,200
Q2 gross margins declined 10 percentage points YoY to a multi-decade low. Past input cycles are not comparable as inflation is broad-based this time. Citing this Jefferies has trimmed EPS (Earnings Per Share) by 10-15% and is of the opinion that due to lack of visibility in performance improvement the stock deserves a de-rating.
Credit Suisse | Rating: Outperform | Price target: Rs 3,500
The unprecedented margin pressure is transient in nature, the company has reported very strong volume growth. Credit Suisse expects margin pressure to ease in the next two quarters, but cuts earnings estimate for FY22 by 9%, FY23 by 7% and FY22 by 5%.
Macquarie | Rating: Outperform | Price target: Rs 3,900
Asian Paints shared a bullish outlook on demand guiding to 10% plus growth in the second half of FY22. The company intends to take a price hike to offset raw material pressure that impacted margins in Q2. It aims to bring back the margin to 18-20% by Q4. The brokerage firm has cut EPS (Earnings Per Share) by 12% to factor in Q2 disappointing performance.
(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises market participants to check with certified experts before taking any buy, sell or hold decisions.)