Q1 Results Review: Paintmakers Beat Estimates But Outlook Remains Bleak
Lower discretionary spend and monsoon deficit may weigh on paintmakers earnings in the coming quarters.
India’s three largest paintmakers beat estimates in the quarter ended June as volumes rose and crude prices fell.
Asian Paints Ltd., Berger Paints India Ltd. and Kansai Nerolac Paints Ltd. reported a mid- to high-teen growth in domestic decorative paint volumes in the April-June period against 10-12 percent expected, according to data compiled by BloombergQuint. Blended volume growth of Kansai Nerolac, however, is lower than peers on account of higher share of industrial paints to its overall revenue.
The slowdown in industrial and automotive paints business was offset by a strong double-digit volume growth in the decorative segment, HM Bharuka, managing director at Kansai Nerolac, told BloombergQuint. While the company doesn’t provide segment-wise data for volumes, ICICI Direct said the decorative segment’s growth stood at about 13 percent.
Vivek Maheshwari, analyst at CLSA, said the 15-percent volume growth for Asian Paints is a “big positive surprise” at a time sluggish auto sales trend raised concerns over discretionary spending. The growth, according to the company’s post-earnings conference call with analysts, was partly on account of “aggressive channel push through innovative schemes, strategic spends and destocking in the base quarter following cuts in goods and services tax rate”.
Also, lower crude prices during the quarter aided margin of the companies. Paintmakers use crude oil derivatives such as monomers and titanium dioxide as raw materials, which account for more than 50 percent of their total expenses.
Still, lower discretionary spend, monsoon deficit and weak macroeconomic factors may pose challenges for paintmakers in the coming quarters.
“As of now things looks reasonably good but it is difficult to measure demand,” Abhijit Roy, managing director and chief executive officer of Berger Paints, told BloombergQuint. “If the economy does well and the monsoon is reasonably good then we could see an improvement.”
Sameer Kalra, founder of Target Investing, said paint companies typically push up inventories in anticipation of the festive season. “We, however, remain cautious on the sustainability of this growth. Weakness on the industrial side along with demand tapering off in the decorative segment may result in a low double-digit or high single-digit growth,” he told BloombergQuint.
