Mumbai: Asian Paints Limited, the country’s largest paints firm, on Monday posted a 15.9% rise in consolidated net profit for the quarter ended 31December, even as revenue remained flat on a consolidated level. Profit from continuing operations was up 19.5% year-on-year.
Asian Paints’ revenue from operations was flat at Rs4,267.49 crore, although comparable growth in revenue was 10.9% year-on-year, after GST effects on line items. Consolidated net profit for the period stood at Rs567.21 crore up from Rs489.31 crore in the December 2016 quarter.
“The Decorative Paints business registered single digit volume growth in the current quarter," K.B.S. Anand, managing director and chief executive of Asian Paints, said in a statement. “In the international markets, units in Bangladesh, Oman, Bahrain, and Nepal witnessed good growth. However, the international group performance was impacted by adverse exchange rate fluctuations in some key markets," he said.
However, the company’s input costs also rose rapidly, up 13.66% from a year earlier to Rs2,142.17 crore for the quarter. This was largely led by higher prices of crude and Titanium Dioxide, both crucial factors in paints markets. While Brent Crude prices hit a three-year high at $70 a barrel this month, prices of Titanium Dioxide are up nearly 38% since January 2016.
“There is not much by way of a base effect of demonetization because paints companies made most of their sales in the September quarter of 2016, during the festival Diwali season," Sachin Bobade, equity research analyst at Dolat Capital said. “We estimate volume growth for the quarter was at 7% year-on-year. This is still low, largely because demand in rural markets is low," he said.
“Asian Paints will have to take a price hike, because their gross margin is at just 150 basis points," Bobade said. “They are largely managing on reduced A&P (advertising and promotion) spends. I don’t expect A&P spending to rise until the company takes price hikes," he added.
Asian Paints is not satisfied with its volume growth rates and is considering a price hike, its management said in a conference call with analysts on Monday.
“We are definitely not happy with the volume growth we are getting," Anand said. “However, our value growth is reasonable. We don’t think we are losing market share, but the growth in the paints industry has not been good enough for us to grow higher."
“The demand has not yet reached pre-GST levels in our opinion. The overall economy growth has still not reached the numbers it was reaching earlier," Anand added.
Stocks of Asian Paints Limited closed at Rs1,176.70 per share, down 1.40%, while the benchmark BSE Sensex closed 0.81% higher at 35,798.01 points. The results were declared after markets closed.