Asian Paints Sees Recovery In Demand In First Quarter Of 2020-21
India’s biggest paintmaker said demand has started to pickup in rural areas and smaller cities and the pace is faster than metros as businesses resume operations after the nation eased lockdown curbs.
“There was a lot of pent-up demand in the semi-urban and rural areas. June has been much better than May and [businesses in] most small towns and cities are operating at 90-95% levels,” Amit Syngle, managing director and chief executive officer at Asian Paints Ltd., told BloombergQuint in an interview.
The trend in large cities is driven by the level of spread of the Covid-19 pandemic, he said, with some recovery in demand seen in select metros. “The metros and tier-I cities have been a little bit slow as some of them are returning to normalcy now, especially Mumbai, Delhi and Chennai. But otherwise, we are seeing a good pickup in some metros like Bengaluru and Hyderabad.”
Consumers halted discretionary spending because of salary cuts and job losses as the coronavirus outbreak froze all economic activities, crimping demand for decorative and industrial paints. That even offset the benefit cheaper crude-linked raw materials. While paintmakers expect to recoup the lost demand in the quarter ending June, a complete recovery may still be some time away.
It’s difficult to forecast growth in the ongoing year, Syngle said. The key factors to watch out for, according to him, are how things return to normalcy, availability of labour and addressing consumer concerns around safety.
Asian Paints' net profit fell 2.1% year-on-year to Rs 461.9 crore in the quarter ended March. Its sales declined 7.1% to Rs 4,636 crore.
Still, analysts remain bullish on the paintmaker.
“We expect a considerable boost in second half of the ongoing fiscal, driven by repainting demand and market share gains. We believe Asian Paints’ diversified portfolio and strong brands place it in a formidable position to gain market share,” CLSA said in a note.
According to Edelweiss, as normalcy returns, Asian Paints’ operational ability and market leadership will help it regain volumes. Benign raw material prices should also continue to aid margins.
Shares of Asian Paints rallied close to 8%—the biggest single-day gain in more than three months—compared with a 0.4% drop in the benchmark Nifty 50 Index.