It has introduced new products in the low-end distemper category to improve growth rates
Asian Paints stock trades at a one-year forward price-to-earnings multiple of around 51 times, making it one of the expensive stocks in the consumer discretionary space
Market leader Asian Paints Ltd’s volume growth would have been extremely dull, had it not been for low-end products. The company’s key decorative paints segment continued to register double-digit growth in the September quarter as well. According to analysts, volumes are estimated to have grown 13-14% in the September quarter. However, volume growth was lower compared to the June quarter.
Analysts at UBS Securities Pvt. Ltd said, “We believe that the company has allowed mix dilution of 5-6% by pushing low-end putty throughput from newly added distributors."
An analyst at a domestic institutional brokerage firm said on condition of anonymity, “For now, the stock has not reacted negatively to the increase in sales of low-end products. But valuations are expensive and if sales of high-end paints don’t revive, then some pressure might be seen eventually on the stock and valuations."
The Asian Paints stock trades at a one-year forward price-to-earnings multiple of around 51 times, making it one of the expensive stocks in the consumer discretionary space.
In a post-earnings conference call, the management acknowledged that low-end paints, emulsions, putty and distempers were growing at a much faster rate. The market size of putty and distempers is estimated at ₹5,000-6,000 crore and ₹10,000 crore, respectively. So, the company has introduced a number of new products in the low-end distemper category to improve its growth rates, said the management.
As anticipated, benign raw material costs helped Asian Paints’ gross margins. Gross margins expanded by more than 250 basis points on a year-on-year basis in the September quarter. Operating margins, however, rose only 60 basis points, impacted by higher staff cost and other expenditures.
Consolidated profit rose 67.5% year-on-year to ₹823.40 crore in the September quarter, aided by deferred tax reversal of around ₹149.7 crore. Adjusting for that, the company’s net profit grew 29% year-on-year, say analysts.
The Asian Paints stock opened Wednesday’s session in the green at ₹1,762.40 on National Stock Exchange, but ended about 0.7% lower at ₹1,767.40. The stock has risen 29% so far this year, easily beating the Nifty India Consumption index’s return of around 3%.