Asian Paints slips 1% ahead of Q3 nos; here's what brokerages expect

Shares of Asian Paints slipped around a per cent in the early trade on Wednesday ahead of its December quarter results due later in the day. Most analysts expect the paint major to report double-digit growth in its net profit on yearly basis while softer crude prices are expected to aid gross margin expansion of the company.

Analysts at KR Choksey see sales (revenue) growing 8.31 per cent year-on-year (YoY) to Rs 5,734 crore. Sequentially, the numbers are expected to rise 13.5 per cent. Earnings before interest, tax, depreciation and amortisation (EBITDA) is estimated at Rs 1,159 crore, up 11.2 per cent YoY and 21.38 per cent QoQ while EBITDA margin is projected to rise 51 basis points (bps) YoY and 131 bps QoQ. The brokerage expects net profit at Rs 781 crore, up 22.8 per cent YoY. However, on sequential basis, the numbers are expected to slide 5 per cent.

The brokerage says sales will grow on the back of launch of products in the premium segment to capture more market from the highly unorganized sector from Tier 2 and Tier 3 cities. "Furthermore, we think that the gained traction in the greenfield project in Indonesia will help the company growing further," analysts at the brokerage wrote. 

Volume growth in rural areas, investment in capacity addition, distribution network expansion, new product launches and change in product mix, broad product portfolio spanning price points, and inflationary pressure on international business are some of the key things to watch out for in the result announcement. 

Edelweiss Securities anticipates revenue, EBITDA and PAT to grow about 7.8 per cent, 8.3 per cent and 16.5 per cent, YoY respectively. "For the quarter, we expect Asian paints to report nearly 10 per cent YoY volume growth on a base of 22 per cent (Q2FY20 saw 14 per cent volume growth on a base of 11 per cent). Price cuts in the paints has been nearly 0.6 per cent YoY, but we believe effective price cut translation taking into account lower realisation and discounts would be negative 2 per cent," the brokerage said in an earnings preview note.

Lower effective tax rate of 25.2 per cent announced by the government as against 34.1 per cent in Q3FY19 will lead to net profit growing ahead of EBITDA, it added. 

At 10:11 am, the stock was trading 0.9 per cent lower at Rs 1,794 apiece on the BSE while the S&P BSE Sensex was trading 68 points or 0.16 per cent higher at 41,391 levels.


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