Asian Paints Q2 Preview: Weak demand to drag revenue, profit lower

Asian Paints is expected to report muted numbers for the July-September 2024 period, with flattish revenues and a decline in profitability, mainly due to a weak demand environment.

Revenue from operations during the second quarter is likely to fall by a marginal 0.2% year-on-year, according to an average estimate of four brokerages.

Net profit, meanwhile, is seen declining 7% year-on-year, the estimates revealed. Operating margins and profit are also estimated to drop, led by negative operating leverage and heightened operating costs in the light of increased competition.

Axis Securities

We estimated volume growth of 6%, while value growth flat, impacted by weak mix and price deflation. EBITDA is expected to decline on account of negative operating leverage, higher ad-spends. Key monitorables are the demand outlook — metros/tier 2/3 towns; RM outlook; margin outlook; pricing actions; and competitive intensity.

Kotak Equities

We expect a 1% YoY decline in standalone revenue (largely domestic decorative paints) and 8% volume growth despite a weak base (2QFY24 was impacted due to the late festive season), as demand was a bit subdued in the current quarter. We build ~4.5% growth in subsidiaries, translating into a consolidated revenue decline of 0.3% YoY.

We estimate consolidated gross margin at ~42.4% (down 100/15 bps yoy/qoq) due to weak mix and RM inflation, partly offset by recent price hikes. We expect EBITDA margin at 17.9%, down 235 bps YoY.

Nuvama

Consolidated revenue is likely to be flat YoY (Q1FY25: 2.3% decline; Q2FY24: 0.2% growth). Demand for exterior paints (generally a high-margin business) was muted due to ongoing rainfall.

Demand overall was found a bit challenging and downtrading continues. We anticipate volume growth of 6% YoY in Q2FY25 (Q2FY24: 6%; Q1FY25: 7%).

Consumer response to new paint companies has been weak so far — not surprising given high entry barriers. EBITDA is likely to decline 10% YoY due to adverse mix, lack of operating leverage and high base.

Gross margin shall decline 107 bps YoY to 42.3%, whereas EBITDA margin would decline 204 bps YoY to 18.2%.

We expect volume/value gap to narrow going forward in H2FY25, aided by price hikes, and improvement in demand due to the coming wedding season.

Motilal Oswal

The demand environment was weak in the second quarter. We expect flat revenue growth and volume growth of 5% in domestic decorative paints. EBITDA margin is expected to decline 260bps YoY due to negative operating leverage. Gross margin is expected to decline by 40bp YoY to 43% due to product mix. Key monitorable will be the competition with new players.

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