Asian Paints slips 3% after Q3FY23 result misses street estimates

Shares of Asian Paints were down 3 per cent to Rs 2,857 per share and fell 4 per cent from its high of Rs 2,972 apiece in Thursday’s intra-day trade, after paint and décor company reported lower-than-expected revenue for the December quarter (Q3FY23).

The company’s consolidated sales grew by 1.7 per cent year-on-year (YoY) to Rs 8,607 crore. Earnings before interest, taxes, depreciation, and amortization (ebitda) grew by 4.5 per cent YoY to Rs 1,611 crore, while margins expanded by 57 basis points (bps) YoY to 18.7 per cent. Net profit after minority interest increased 5.6 per cent to Rs 1,073 crore.

"The domestic decorative business registered a flat volume and value sales delivery for the quarter, on a very high price increase base in the previous year. The extended monsoon in October also affected retailing in the peak festival season; but demand picked up in November and December leading to a double-digit growth for the decorative business in December," the management said.

Moreover, the management said that the industrial business did well led by strong growth in the auto OE and general industrial segments. The home décor market continued its expansion foray but witnessed some slowdown in the bath and the kitchen business this quarter.

Analysts at ICICI Securities, meanwhile, expected Asian Paints to report revenue growth of around 5 per cent YoY to around Rs 8,989 crore in Q3FY23 owing to lower volume offtake.

“The EBITDA margin is likely to decline ~90 bps YoY at 17 per cent, mainly due to higher advertisement expenses and low operating leverage. The company is likely to report flattish PAT of Rs 1,042 crore YoY tracking lower EBITDA margin,” the brokerage firm had said in their result preview.

Amnish Aggarwal – Head of Research, Prabhudas Lilladher, meanwhile, said that Asian Paints reported numbers below our/street estimates on all fronts.

"Volumes were flat YoY which was impacted by high base & extended monsoons in October which affected the festive demand. Margin recovery is a positive which we believe can continue into Q4 as well,” he added.

However, Asian Paints might settle for margins lower than historical given the expected entry of Grasim in Paints, said analysts.

"We remain positive on Asian Paints; however a re-rating looks unlikely given premium valuations and likely disruption due to the entry of a large player," said Prabhudas Lilladher.