Asian Paints Q3 Preview: PAT Expected to Rise 8% YoY; Volume Growth on the Upswing
Asian Paints is poised for a stable performance in the December quarter, with improved volumes and margin enhancement somewhat offsetting challenges from weak pricing and a lackluster demand environment. Five brokerages anticipate a revenue uptick of approximately 5% year-on-year (YoY) for Q3, while profit after tax (PAT) is projected to rise by around 8% compared to the previous year.
Revenue Growth Modest Amid Weak Pricing
Brokerages generally predict that revenue growth in Q3 will remain modest, despite a positive momentum in volume:
– Systematix forecasts a volume increase of about 10% YoY, but expects flat net pricing and an unfavorable product mix to restrain topline growth.
– Kotak Equities sees standalone revenue growth slowing to about 4% YoY from 5.6% in the September quarter, attributing this to muted demand for decorative paints and increased competitive pressures.
– Nuvama adopts a more cautious stance, estimating a consolidated revenue rise of roughly 3.5% YoY, as pricing pressures persist—driven by stronger growth in lower-priced categories such as putty and construction chemicals.
– Conversely, Motilal Oswal predicts a stronger growth of around 6.5% YoY due to a weak comparison base from last year.
Volume Growth Takes Center Stage
Volume growth is anticipated to be the standout positive in Q3, with most brokerages predicting significant gains:
– Kotak Equities expects approximately 8% volume growth.
– Systematix estimates this will be closer to 10%.
– Motilal Oswal is optimistic, projecting domestic decorative paint volumes to grow by about 12% YoY.
However, the disparity between volume and value growth remains a concern. Many brokerages note a trend of downtrading among consumers, shifting toward lower-priced products, which continues to suppress pricing.
Margin Improvements Expected
One of the most encouraging aspects of this quarter is the anticipated margin expansion:
– Kotak Equities estimates that consolidated gross margins will rise to around 44%, reflecting an increase of 160 basis points YoY, supported by a favorable raw material environment.
– They also foresee EBITDA margins improving to about 20%, up 90 basis points YoY, despite higher advertising expenses.
– Systematix anticipates similar improvements due to lower raw material costs.
– Motilal Oswal forecasts a gross margin expansion of around 140 basis points YoY to approximately 43.8% and an EBITDA margin increase of roughly 70 basis points to around 19.8%.
– Nuvama is slightly more optimistic, projecting gross margin improvements exceeding 200 basis points YoY to about 44.5%.
Subsidiaries and B2B Support
Despite steady subsidiary performance, it’s not expected to significantly drive growth. Kotak Equities models low single-digit YoY growth for subsidiaries, similar to the preceding quarter. Notably, demand for exterior paints has slowed due to unseasonal rains in October; however, this is largely viewed as deferred demand that may shift into Q4.
On a brighter note, the B2B segment is expected to experience double-digit growth, fueled by government capital expenditures and infrastructure activity, potentially offsetting weaknesses in certain retail segments.
Key Insights for Q3
Investors should keep an eye on management commentary regarding:
– Demand revival prospects
– Competitive intensity
– Pricing strategies
– Sustainability of margin gains
In conclusion, Asian Paints is on track for a steady Q3 performance, with an 8% increase in PAT and promising volume growth. As the company navigates challenges in pricing and demand, its ability to leverage cost efficiencies and maintain solid margin improvements will be crucial for sustaining long-term growth.