Asian Paints Q1 profit may decline, revenue likely to surge in double digits

Kotak said it expects 160 bps YoY decline in EBITDA margin led by 70 bps drop in gross margin, higher SG&A and other expenses pertaining to recently commissioned Vizag and Mysuru facilities

Asian Paints is expected to show subdued performance in the bottom line on weak operating margin but revenue growth could be in double digits on volume support in the quarter ended June 2019.


According to brokerages, profit may fall in single-digit with margin contraction of more than 100bps year-on-year in Q1, but sequential growth could be strong.

"We estimate 9.2 percent decline in adjusted PAT for the quarter as higher depreciation from two new plants kick in," Motilal Oswal said, adding operating margin is likely to contract 250bp to 17.4 percent, with EBITDA declining 2.9 percent YoY.

The brokerage expects gross margins to contract 200bp YoY to 41.2 percent.

Kotak said it expects 160 bps YoY decline in EBITDA margin led by 70 bps drop in gross margin, higher SG&A and other expenses pertaining to recently commissioned Vizag and Mysuru facilities, but it expects healthy sequential improvement in EBITDA margin aided by favorable raw material trends.

The brokerage sees 3.4 percent year-on-year fall in profit but sequentially the same may grow 14 percent with margin expansion of 192bps.

Crude prices were down 8.1 percent YoY (up 8.4 percent QoQ) in Q1FY20. The magnitude of price movement in crude derivatives is lower and comes with a lag vis-à-vis crude prices.

On the top line front, among brokerages, ICICI Securities looked more optimistic saying Asian Paints is likely to record sales growth of around 13 percent YoY in Q1 led by volume growth of around 11 percent YoY.

According to Kotak, revenue could rise 11 percent YoY led by 8 percent volume growth and 3 percent price/mix-led growth. Motilal Oswal and Prabhudas Lilladher also expect similar kind of growth levels.

Key issues to watch out for would be demand scenario across urban and rural areas, market share trends, the outlook for key raw materials, commentary on pricing action, timeline on profitability in the Sleek and Ess Ess business, and business challenges improvement in international markets like Egypt, Bangladesh, and Ethiopia.

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