The company’s Q1 volume decline of 35-40 per cent (analysts’ estimates, as company does not share volume data) was mainly due to the lockdown, and was better than expectations. The management’s commentary about sustaining June volume recovery, if there are no major lockdowns, offers comfort.
However, there is an element of scepticism on the outlook.
Vishal Gutka, vice-president at PhillipCapital, says: “Sharp volume recovery in June was mainly due to pent up demand. We believe the volume recovery pace is unlikely to remain strong going ahead due to lower special occasions such as weddings.”
There are also worries about how volume growth pans out in rural and semi-urban areas, given the increasing spread of Covid-19 there. Some economists also believe that gains from government schemes and higher farm incomes might be offset by factors such as lower remittances as workers have migrated back to villages.
The volume recovery in June was also driven by semi-urban and rural areas, which account for around 50 per cent of Asian Paints’ revenues.
While the management expects the demand momentum in these areas to continue, the jury is out on this.
Overall, the stock, which is already enjoying rich valuations of 63 times FY21 estimated earnings, is unlikely to see significant upside unless there are clear signs of sustainable volume recovery, caution analysts.