Paints

29 Jul

Confident of future as a lot of new demand has come in June – Asian Paints

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 169 pts (+1.5%) at 11,300.
Among the sectoral indices, AUTO (+3.2%), METAL (+2.2%) and IT (+2.4%) were top gainers while MEDIA (-0.2%) was the only loser.
Among the stocks, ULTRACEMCO (+7.0%), KOTAKBANK (+4.7%) and TCS (+4.7%) were the top gainers. ICICIBANK (-1.8%), INFRATEL (-1.6%) and NESTLEIND (-1.4%) were the top losers.

Confident of future as a lot of new demand has come in June – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director & Chief Executive Officer, Asian Paints with Economic Times dated 27th July, 2020:

We saw a lot of secondary demand come up across the cities and that has boosted our confidence that a lot of new demand has come in areas of painting, waterproofing and so on, says Amit Syngle, MD & CEO.

• His comments on 1QFY21 result: There was no business activity from 20th March to end of April due to the lockdown. The entire month of April was an absolute washout. A lot of pent up demand was seen in May and people had to look at some of those real pent up maintenance issues. Therefore, in May, there was very satisfying pent up demand across the country. However, a good part of it was seen in June, triggered by Asian Paint’s safe painting campaign which gave people confidence that it was safe to get a set of painters to get your house painted. A lot of secondary demand came up across the cities and that has boosted the company’s confidence that it was not only the pent up demand which we saw in May but a lot of new demand which came in both in the area of painting, waterproofing and so on. This was also led by another campaign which Asian Paints did with terrace waterproofing. A lot of demand which has come in the June is new paint demand and that has boosted confidence in the market.
• When asked about how confident he is of this new paint demand trend continuing he replied that the month of July has been more challenging in terms of the sporadic lockdown across various states. But till now, the indications have been good in terms of looking at how the paint demand is coming and he feels that today the trend is changing. Some of the tier one-tier two cities which were slow to kind of recover are recovering at a higher rate the surge was possibly shown at the smaller cities which were the tier three, tier four cities. He further added that there might be slowing down a little as Covid is spreading more into the hinterland but there is a balancing which is happening with respect to that and therefore the current indications are that volumes are still looking decent.
• When asked about the demand pattern of premium decoratives, he stated that some products are at the luxury and premium end and are also solutions based. If people are looking at that kind of an antibacterial protection for their homes, it is still value for money coming at the luxury end. But in general, there is a little bit of downtrading where people are coming down from the luxury end and looking at more premium products and upgrading far more strongly. A lot of discretionary spend is happening in terms of maintenance rather than absolutely décor. Therefore, he is of the view that a part of this painting has come in because people would like healthy and hygienic homes, fairly clean and beautiful homes
• His stated his views on pricing strategy: Overall, the company has been very cautious and is looking at ways and means in terms of better material costs, sourcing efficiencies and formulation efficiency. As of now, there is a little bit of neutrality coming because there is a rupee which has depreciated. Raw material prices are going up as demand comes back. Volatility will continue and he will be more focused in terms of internal efficiencies and going ahead, he doesn’t see any changes in terms of prices till the time there is a stability in terms of the environment we are in.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Asian Paints was ₹ 1,756/- as of 28-July-2020. It traded at 67x/ 51x/ 44x the consensus earnings estimate of ₹ 26.7/34.9/40.9 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 1,810/- implies a PE multiple of 44x on FY23E EPS of ₹ 40.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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06 May

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Update on the Indian Equity Market:

For the second consecutive day, the Nifty closed lower at 9,206 on Tuesday amid reports of stress among lenders when millions of borrowers are facing pandemic induced income loss. As a result, there were no sectoral gainers. PSU Bank (-3.3%), Realty (-2.9%), and Bank (-2.4%) were the top losing sectors. Among the stocks, the biggest gainers were Infratel (+3.6%), M&M (3.2%), and Powergrid (+2.9%). SBIN (-4.2%), Bajaj Finance (-3.8%), and Britannia (-3.6%) led the losers.

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Excerpts of an interview with Mr. Amit Syngle, MD & CEO, Asian Paints which aired on CNBC TV18 on 4th May 2020:

  • For the last 3-4 weeks, Asian Paints were under a complete lockdown. The lockdown 3.0 has offered some relaxation.
  • Some of the plants and warehouses have opened as shops for non-essential goods have been allowed to open. Most of their plants have opened but work at slightly reduced capacity.
  • Asian Paints has given buyers 45 days of credit and asked vendors for an extension as well. Talking about the liquidity position, he said stringent cost-cutting measures are being undertaken to preserve cash. There is comfortable liquidity going ahead and they do not foresee any problems in the coming period.
  • Asian Paints had announced their foray into the hand and surface sanitizer with the Viroprotek range of products. Talking about the development of this range, he said they have worked on the range in the last 10-15 days at the behest of the government and the Ministry of Health, and Ministry of Chemicals.
  • As a responsible and caring brand, they wanted to help the government and community and the shortage in the market was the motivation for entering this segment. They already have the Royal Health Shield, a range of antibacterial paint that ensures hygiene and bacteria control. So entry into the sanitizer range aligned with their objective.
  • They have been in the Health and Hygiene space for some time and have products in that range. In the near future, Viroprotek will be a part of the overall range.
  • To ensure reach to the right outlets and ensure adequate supply, their distribution segments will be activated.
  • Though initially entire production will be directed to the Government and NGO initiatives, sanitizers & surface cleaners will be part of Asian Paint’s portfolio in the future. They are looking to enter the service industry for sanitization in a very big way.
  • On the business plans going forward, he said they are watching and devising scenarios as to what will happen in these exceptional circumstances. There is no clarity in terms of how the situation envelops, and what is going to happen. Thus, depending on how the situation clears up and the market opens, plans will be made accordingly. It is difficult to give concrete plans as the entire environment is uncertain.
  • Talking about the top line, no action will be seen in 1QFY21. As per indications coming in, it will be a wipe off quarter. It is difficult to say how revenues will come in for the entire year.

Consensus Estimate: (Source: market screener website)

  • The closing price of Asian Paints Ltd was ₹ 1,618/- as of 05-May-2020.  It traded at 49.5x/ 41.6x the consensus EPS estimate of ₹ 32.7/ 38.9 for FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,822/- implies a PE multiple of 46.8x on FY22E EPS of ₹ 38.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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05 Aug

Asian Paints 1QFY20 result highlights: Performance beyond street estimates, uncertain about sustainability.

Dated: 25th July 2019

1QFY20 result:

  • Consolidated Revenue was Rs 51,306 mn, 17% higher YoY.
  • EBITDA was Rs 11,563 mn, 24% higher YoY. EBITDA margin reported at 22.5%, an improvement from 21.1% in 1QFY19.
  • Net Profit was Rs 6,721 mn, 18% higher YoY.

Management Commentary:

  • Asian Paints saw double-digit volume growth across segments. Lower value products like distemper and putty continue to grow faster than premium products. In 1QFY20, decorative paints segment in the Indian market grew in high double digits.
  • Asian Paints undertook aggressive channel push in 1QFY20 contributing to the higher revenue growth.
  • Growth in smaller towns has been much higher than metros.
  • EBITDA margin improvement came from benign raw material prices and a decrease in freight cost from the new plants in Vizag and Mysore.
  •  Employee costs in 1QFY20 fully reflect the incremental costs from new plants. Other expenses will grow as production ramps up.
  • Advertisement costs are generally lower in the 1st quarter. Some of the ad costs shifted from 1QFY20 to 4QFY19 due to IPL season.
  • Management is cautious about the growth going forward. Economic conditions remain challenging and may result in a negative impact on the coatings business. Uncertainty also exists in the International business due to developments in the Middle East.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 1,496/- on 25-Jul-19. It traded at 55x / 48x the consensus EPS for FY 20E / FY 21E EPS of Rs 27.3 / 30.9 respectively.
  • Consensus target price of Rs 1,516/- implies a PE of 49x on FY21E EPS of Rs 30.9.
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