Preview of Asian Paints Q3: Asian Paints’ third-quarter earnings are probably going to be bolstered by improved margins driven by cheaper raw material prices. However, lower-than-expected demand in the third quarter suggests that volume growth may be sluggish and that analysts anticipate revenue growth to stay in the single digits.
Preview of Q3 Results: Asian Paints is probably going to report a mixed-bag result for the quarter that ends in December. According to observers, the demand for paint was strong during November’s festival month but declined after that. There was no significant increase in demand throughout the quarter due to the unpredictable monsoon pattern. Nonetheless, the demand from industries and projects is probably going to sustain the expansion of paint producers like Asian Paints.
Outlook for Volume
Thus, expectations for volume increases are still limited. While ICICI Securities anticipates volume growth in the mid-single digits, some observers predict it to be in the high single digits or low double digits for paint businesses such as Asian Paints.
Paint firms are expected by ICICI Securities to achieve mid-single-digit volume growth in Q3 FY24. Around Diwali, the offtake improved, but they indicated that after that, it lost steam. Asian Paints announced a 1% price reduction for the majority of decorative categories on November 15, 2023; nevertheless, dealer inquiries through the brokerage indicate that the action did not significantly improve consumer satisfaction. Analysts at ICICI Securities predicted that B2B revenue growth (project business) would have continued to be robust in Q3 FY24 YoY. Dealers predict increased demand in Q4FY24, especially in February and March of that year.
Q3 Estimates of finances
Asian Paints’ standalone revenues, which are mostly from domestic decorative paints, are expected to climb by 6% year over year in Q3, according to analysts at Kotak Institutional Equities. They did, however, note that Asian Paints’ volume growth may have been slightly greater (around 9%) given the economic range and commodity items (such putty and tile adhesives). Consolidated revenue increased by 6% year over year thanks to Kotak’s 6% rise in subsidiaries.
Additionally, HDFC Securities projects that Asian Paints’ consolidated business would have sales increase of 6.4% YoY in the December quarter (6.2% growth in standalone business). According to them, this results in a 10% yearly increase in volume and a 3.5% annual decrease in price.
Nonetheless, margins should continue to underpin earnings, as HDFC Securities projects a 457 basis point increase in gross margins year over year due to the decline in crude prices. However, paint input costs might somewhat increase sequentially. EBITDA margin will increase by 269 bps year over year and 111 bps sequentially to 21.4% as a result of Asian Paints’ gross margin recovery, according to HDFC Securities. As a result, Asian Paints’ net profit might increase by 27.4% year over year and 16.4% sequentially.
Error bars before interest, taxes, depreciation, and amortization is known as EBITDA.
Additionally, a 30.7% growth in net profits is anticipated by Kotak Institutional Equities, with sequential gains for Asian Paints of 16.3% and EBITDA margins of 21.8%.
The following will be the main outcomes to monitor:
- Management of Asian Paints comments on developments in demand
- An analysis of the trends in input costs.
- Trends that are rebuffed and discarded
- Trend of dealer addition
