Asian Paints posts good March quarter show on back of strong volume growth

Resilient volume growth coupled with low base effect enabled decorative paints major Asian Paints to post a good show in quarter to March. Its consolidated revenues grew 21% - highest in the last eight quarters. The company has informed of registering double digit volume growth aided by good demand from tier 2 & tier 3 cities.

High raw material cost and other expenses however restricted gains on the margin front. Raw material cost constituted 59% of the consolidated revenues and grew at 24.5% - higher than the revenue growth. Thanks to the price increases taken through the fiscal 2014, the company just managed to maintain operating margin at 14.8% - the lowest in the last four quarters.

While decorative paints performed well, the industrial paints business continued to suffer on account of slowdown in economy. Subdued demand from automobile industry led to poor performance of the automotive paints segment.

The performance of the company's international business segment was mixed with some markets like Bangladesh, Nepal and Emirates doing well compared to others that were impacted by political unrest and economic slowdown.

While Asian Paints managed to close the fiscal year 2014 on a strong footing, it remains to be seen how it will garner volume growth amidst challenges like forecast of El Nino adversely impacting farm production and raw material inflation. A low base effect may again help to post a good performance for the current quarter to June.