Asian Paints: Higher input costs won’t paint a rosy picture for co

Exceeding the market expectations, Asian Paints logged good performance in its fourth quarter ended March 2010. The consolidated net sales grew by 32% while the net profit increased by 90% over the previous year. However, these results are not comparable with the same quarter of the previous year as they include six months of results of overseas subsidiaries (October 2009-March 2010). Adjusting for the additional three months, the comparable net sales have registered a modest growth of 16% and net profit has increased by 76%.

The revenue growth was aided by strong demand in the decorative and automotive paint segment even as growth in industrial paint and international business remained subdued. The demand in the domestic market has been good. With a good monsoon this year, the strong performance of the decorative paint segment is likely to continue. Growth in sales of passenger vehicles has fuelled the demand for automotive paint segment. This is expected to continue in the forthcoming quarters. Augmenting growth in the non-auto industrial paint segment has been a challenge for the company in the past couple of quarters due to deferral of capex spends by many industrial units.

Asian Paint’s international business, which contributes around 17% to its revenues, has been impacted by the global slowdown. While markets like Nepal, Bangladesh and Egypt did well, markets in the Middle East, South Pacific and Caribbean countries faced the heat of economic slowdown. Reduction of uncertainty on the global economic front is the key element for the recovery of the international business.

The company has indicated a possible contraction of margin due to inflationary trend being witnessed in raw material prices. As a counter measure, the company has effected price increase of 4.2% beginning from May for its decorative product portfolio.

Going forward, investors have to brace for margin contraction as the company faces threat of higher raw material prices. Sales growth is likely to maintain its momentum, unless the demand in domestic market gets adversely impacted.