Outliers in Q1: Asian Paints, Dabur, DMart, Nerolac, shine in a gloomy mkt

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The ongoing June quarter (Q1) results season has thrown up a few outliers in a market that is undergoing a sustained consumer and retail slowdown. Asian Paints, Dabur, Avenue Supermarts, which runs the DMart chain of stores, Kansai Nerolac, and Reliance Retail stand out for their stellar numbers.

Consider this: Asian Paints reported a top-line and bottom-line growth of 16.9 per cent and 17.7 per cent, respectively, year-on-year (YoY) in Q1, beating analysts’ estimates on both counts. The biggest surprise came on the volume growth front at a time when most businesses are facing pressure. Asian Paints reported a 17 per cent volume growth in its decorative paints business, which contributes over 70 per cent to its top line. This was way ahead of the 8-13 per cent that analysts had forecast.

Kansai Nerolac also surprised the street with a double-digit volume growth in decorative paints. Kansai's YoY top-line and bottom-line growth stood 9.38 per cent and 5.3 per cent, respectively. While Dabur reported volume growth of 9.6 per cent, ahead of the 4-5 per cent range forecast by the analysts. The firm’s top-line and bottom-line growth came in at 9.3 per cent and 10.3 per cent YoY each, more than what the street was estimating.

DMart reported its sharpest rise in gross, net and operating margins in five quarters for the three months, ended June. The retailer's YoY top-line and bottom-line growth was also high in Q1, at nearly 27 per cent and 34 per cent, respectively. Reliance Retail, part of Reliance Industries (RIL), saw its earnings before interest tax depreciation and amortisation (Ebitda) cross the Rs 2,000-crore mark, even as revenue grew nearly 48 per cent YoY to Rs 38,196 crore.

Analysts tracking the consumer and retail sectors say the five firms have deployed specific market strategies to push their top-line growth at the same time keeping a tight control on costs.

Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss, says, "Dabur has improved its direct distribution footprint in urban and rural areas. It has also gained share from players such as Patanjali, using a combination of distribution, marketing, and sales promotions. Asian Paints has innovative dealer and consumer programmes, ensuring it is the preferred brand, thereby helping its volume growth inch up. Kansai's control on costs was high in Q1. They had cut ad spends, employee and other expenses substantially during the quarter even as sales volume improved during the period. 
DMart is most competitive in terms of pricing in grocery retail and has also managed to keep cost structures lean, aiding margin growth," he said.

DMart's gross margins in Q1 were 16.1 per cent, higher than the 14-15 per cent range reported in the last four quarters. Its Ebitda margins were 10.3 per cent, higher than the 7-9 per cent range seen in the preceding four quarters, while net profit margins were 5.8 per cent, higher than the 4-5 per cent range seen earlier.

Neville Noronha, MD & CEO, Avenue Supermarts, said, “Gross margin (in Q1) was slightly ahead of our expectations and our continued operational efficiency has resulted in higher profit after tax margins."

Reliance Retail, experts said, has pushed its core retail operations aggressively into tier II, III and IV markets, driven stronger value proposition and catchment-focused assortment in Q1. Grocery, electronics and fashion segments, which constitute its core retail operations, grew 52 per cent YoY, contributing 20 per cent, 27.8 per cent and 8.4 per cent, respectively, to overall revenue mix (of Reliance Retail) during the quarter. 

"Despite a consumer slowdown, we gained from segmentation and a targeted strategy in retail," Mukesh Ambani, chairman, Reliance Industries, said, while announcing the company’s results last week.

Dabur’s CEO Mohit Malhotra said the firm would continue to expand its direct reach, both in urban and rural areas. "We have added 40,000 additional outlets, taking our direct reach to 1.14 million. Our village coverage went up to 48,000 from 44,000, giving our rural business a good momentum. And, we continue to enhance productivity of our distribution network to improve availability and penetration of our products,” he said in a call with analysts last week.

Asian Paints and Kansai Nerolac, on the other hand, are expected to keep their focus on the decorative (paints) business as the automotive segment, part of the industrial paints business, remains weak. While DMart is likely to launch more stores, offer the lowest price in grocery retail and extract efficiencies from its operations.


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