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Paint firms’ Q1 earnings won’t draw rosy pictures

Paint firms’ Q1 earnings won’t draw rosy pictures
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First Published: Tue, Jul 15 2008. 03 05 PM IST
Updated: Tue, Jul 15 2008. 03 05 PM IST
Mumbai: The June quarter results of India’s largest paints companies are likely to be dented by the slowdown in demand growth and margin pressure, as a record crude pushed up input costs, analysts said.
Asian Paints, India’s largest paints firm, is expected to report a 17.5% rise in April-June net profit to Rs96.22 crore, according to a Reuters poll of brokerages.
Its net profit grew at around 50% in the previous two quarters.
For rival Kansai Nerolac, the leader in the auto paints segment, the poll predicted a 12% fall in quarterly profit to Rs28.550 crore.
Kansai has been singed by the slowdown in the auto sector that saw the March quarter profit growth shrinking to 3% from average growth of about 20% in earlier quarters.
“Kansai Nerolac, having sizeable exposure in the industrial paint space, would find it difficult to pass on higher input costs and benefit of price rise will be restricted to decorative paints segment,” brokerage Batlivala & Karani said in an earnings preview note to clients.
“We expect players operating in the decorative paint space to register sales growth of 15-19%. Price hikes in February and June should enable most players to pass on higher input costs and maintain margins,” it added.
Inflation in India has tripled in the last six months to nearly 12%, while May industrial output grew at its slowest in six years, forcing the central bank to push up interest rates close to their highest in a decade.
The paint industry rode the boom in housing, infrastructure and auto sectors to see demand grow at 18-20% over the last 2-3 years, and is likely to be directly affected by any slowdown, analysts said.
Shares in both paint companies have fallen nearly 10% from the beginning of the April against a 14% decline in the benchmark index BSE Sensex in the same period.
“Paint companies, at 20-23 times FY10 earnings, are trading at expensive valuations now, as the Sensex has fallen more. So there is scope for de-rating,” said Anand Shah, sector analyst at Angel Broking, which has revised downwards its target price on Asian Paints by nearly 10%.
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First Published: Tue, Jul 15 2008. 03 05 PM IST