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Asian paints to see lower input costs and price hikes aid performance | Earnings Preview

Asian paints to see lower input costs and price hikes aid performance | Earnings Preview

Asian paints to see lower input costs and price hikes aid performance | Earnings Preview
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By Mangalam Maloo   | Hormaz Fatakia  Oct 19, 2022 10:46:01 AM IST (Updated)

Between May to August this year, Asian Paints has hiked prices by 2.5 percent, following consecutive hikes in November and December 2021.

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India's largest paints manufacturer, Asian Paints Ltd. will report its September quarter results on Thursday. The street is anticipating a good quarter for the company courtesy the correction in input prices, price hikes taken by the company and improvement in the overall demand outlook.
According to a CNBC-TV18 poll, the company is likely to report revenue growth in excess of 20 percent while the margin may expand over 500 basis points compared to the same period last year. Inflationary pressure in the base quarter had hurt the company's margins. The management in their earnings call last year had spoken about inflation trends not seen in the last three to four decades.
During the previous quarter results, the management said that inflation in the September quarter will be 1.5 percent higher quarter-on-quarter. Crude, one of the key raw material for paint companies witnessed their worst quarterly performance in two years between June-September. Generally, it takes close to 90 days for benefits of raw material costs to reflect.
The management has reiterated its focus of wanting to have EBITDA margin in the range of 18-21 percent over the medium to long term.
Investors and the street would keenly await management commentary on the cool-off in raw material prices and how will that impact its pricing strategy.
Between May and August this year, Asian Paints has hiked prices by 2.5 percent, which may aid the company's topline growth during the quarter. Commentary on demand trends will also be watched amidst the withdrawal of monsoons and the ongoing festive season.
Improvement in the company's operating performance is also likely to reflect in the company's bottomline, with net profit likely to improve nearly 80 percent from the year-ago period.
Asian Paints has also managed to gain market share over the last few quarters. During the June quarter earnings call, MD & CEO Amit Syngle said that the company has managed to get very good business from medium-sized industries and within the protective paints business. Another area that Syngle highlighted is of road marking and flooring. "As we see, we would have gained from the organized players in this market in a very strong manner. And this is something which is a strong trajectory basis, superior products, good quality and good servicing," he said.
Commentary would also be awaited on how the company plans on tackling the increased competition in the domestic paints industry as there are new entrants coming into the market. Last year, the board of Grasim had approved a capex of Rs 5,000 crore for the company's foray into the paints business. The JSW Group also entered the paints business in 2019 and is eyeing a domestic market share of 10 percent by the financial year 2026.
Lastly, the street would also look forward to the company's trajectory of increasing the company's share in the Home Care business to 8-9 percent of sales from the current 3-4 percent.
Shares of Asian Paints are down 5.3 percent this year and have been flat over the last 12 months. However, the stock is trading 10 percent away from its all-time high and trades at 54 times next year's forward earnings.
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