Mumbai: Paints maker Asian Paints may report a drop in revenues in the March quarter hurt by the Covid-19 induced lockdown, but profits may look up on the back of lower tax rate and softer input costs.

Sharekhan expects the company to report a 12.1 per cent increase in adjusted net profit, helped by higher operating margins and lower incidence of tax, while sales are seen declining by 4.9 per cent from a year ago, on the back of disruption due to lockdown in late March.

“Asian Paints decorative paint volumes are expected to be impacted at the fag-end of the quarter due to supply disruption. Industrial/auto paints continue to remain under pressure,” Sharekhan said in a note.

Softer crude prices would aid gross margin expansion at companies with higher exposure to crude derivatives such as paint companies.

The sharp decline in the crude prices and consequential decline in crude derivatives and packaging material would result in 194 basis points (bps) improvement in gross margins and a 112 bps improvement in operating profit margin (OPM), Sharekhan said in a note.

Edelweiss expects Asian Paints to report a 11.7 per cent rise in net profit, while revenues are seen dropping 8.6 per cent.

“For the quarter, we expect lockdown on account of coronavirus to affect the second half of March leading to Asian paints reporting ~2.5 per cent YoY volume dip on a base of 10.5 per cent (Q3FY20 saw 11 per cent volume growth on a base of 22.0 per cent),” Edelweiss said in a note.

It pointed that price cuts in paints has been around 1 per cent YoY, but the brokerage believes the effective price cut translation taking into account lower realisation and discounts would be negative 8 per cent.

On the cost front, prices of crude linked raw materials like TiO2 and other monomers have fallen signficantly which should lead to gross margin expansion of 210 basis points.

ICICIdirect.com expects the company to report a 20.9 per cent increase in net profit to Rs 587.5 crore, while it sees revenues inching up merely 0.6 per cent to Rs 5,047 crore.







Source link