Cost cutting, favourable forex rates help Asian Paints: Key Q2 takeaways

NEW DELHI: Asian Paints shrugged off pandemic fears and beat analyst estimates for September quarter earnings even though the profit growth was negligible.

The company said the profitability across businesses was well-supported by a better product mix, stable raw material prices, favourable foreign exchange rate and large number of cost optimization measures put in place by the management.

Here are key takeaways from the earnings:
How much did the company earn?
Asian Paints said its net profits were flat year-on-year (YoY) at Rs 830.37 crore. Consolidated revenue from operations increased 5.93 per cent YoY to Rs 5,350.23 crore.

How did its paints and home improvement segment fare?
The company said its home segment revenue rose to Rs 5,232.88 crore during the quarter from Rs 4,929.67 crore a year ago. Home improvement segment revenue stood at Rs 117.35 crore, down marginally from Rs 120.99 crore.

What is the situation regarding international business?
The international business portfolio did well supported by favourable market conditions in the Middle East, Africa and Asia, the company said. Nepal was an exception, which continues to witness challenging business conditions due to the pandemic.

Did the company announce any dividend?
The board of directors approved the payment of an interim dividend of Rs 3.35 per share. Last year, the company distributed the first interim dividend of Rs 3.35 per share in October 2019 for FY20. Total dividend of Rs 12 per share was distributed for FY20. The dividend payout ratio was 51.1 per cent for FY20.

Management take
“All the business segments continued to witness improving demand conditions on a progressive basis during the second quarter of this financial year. The decorative business segment registered good volume growths for each of the months therefore seeing a healthy double digit volume growth for the quarter with demand picking up across regions. The other business segments in India including the two industrial coatings businesses and both the segments in the home improvement category also experienced improving trends in line with the phased out re-opening of the economy,” said Amit Syngle, Managing Director and CEO, Asian Paints.

Analyst take
The numbers seem to be better than our expectation at least on the earnings front. IWhat we were expecting was a 7 per cent kind of volume growth and 6 per cent kind of sales growth. So at least, earnings numbers are better than what we were expecting,” said Sanjay Manyal of ICICI Securities. “That largely would have been due to the cost or rather significant decline in the raw material cost. Most of it would be the crude-based raw material cost and that would have helped the earnings,” the analyst added.

Valuation
Thanks to its track record of growth, the company enjoys rich valuations. It trades at 90 times its earnings and 21.45 times its book value. Its returns on equity (RoE) stands at 23.84.