Re: {LONGTERMINVESTORS} Asian Paints: thread
RAJESH DESAI
Q2 not colourless, but not colourful either: Asian Paints
Looks like the economic slowdown and high inflation scenario did after all hit consumer spend when it comes to Asian Paints. The company had a flat quarter and even the stock moves flat.
For the first half of the year, Asian Paints has clocked sales growth of 24% year-on-year in FY12. Speaking to CNBC-TV18, PM Murty, managing director and chief executive officer, Asian Paints says that the company had effected price hikes three times in the first quarter and yet, the full cost has not been passed on yet.
The company imports 30% of raw material as supplier credit has has had to bear nearly Rs 15 crore as additional cost due to the rupee depreciation vis-a-vis the dollar. "This has hit our margins this time," Murthy explains.
Nevertheless, it is the domestic market that is driving topline growth for the company at this point. “Rupee depreciation remains a cause of worry and turmoil in MENA region is adding further pressure to international business,” he says.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Can you take us through why performance was lackluster? Why you lost some operating margins in the current quarter and sales were also flattish?
A: I don’t think sales were flattish. We had consolidated sales growth of 24% during the first half. In the quarter itself, it would have been a little bit lower than that, but if you at the six months as a whole, the sales triggers have been pretty good, and we are quite pleased with that.
In fact, sales in India have been a little ahead of what it has been in the markets that we serve abroad.
On the profit front, we have had lots of inflation during those periods. There were price increases that we effected three times during the course of the first quarter. We have not recovered entirely, the increase in cost by way of the pricing on our products, but that is something that we can look at as we move forward.
There has been also a little bit of postponement of sales during the second quarter, essentially due to the extended rains. At the end of the second quarter, we have taken a hit of something like Rs 15 crore. This came about because we had, as usual, imported raw materials which we get as supplier credit. At the end of the quarter, we had to provide for the depreciation of the rupee vis-à-vis the dollar. So that unexpected cost increase of about Rs 15 crore had to be taken on the P&L.
I think that the inflation is easing just a little bit. Although it continues to be high in the case of TiO2, the depreciation of the rupee is certainly a worry because we import about 30% of our raw materials. Overall I remain cautiously optimistic for the balance period of the year.
Q: The concern though would be that despite three consecutive price hikes, the margins have slipped quite a bit this quarter. Going into Q3, what is it that you expect to see first in terms of a recovery in sales that you are alluding to, and whether or not profitability as well may improve?
A: Sales we expect should be pretty good in the domestic market. We are seeing continued good sales through the month of October as well in all of our seasonal markets. So on the topline, we certainly remain optimistic, at least as far the Indian market goes.
In our markets abroad, I must say that there are headwinds. Largest market is Egypt and we also have considerable sales in the Middle East, in Bahrain and so forth. The situation in those places, as you know, is not the greatest. There will be sometime before recovery sets in out there.
On the margin front, as far as the domestic market is concerned, there has been a slippage of about 30 basis points as compared to the previous fiscal in the first half of the year. We are looking at it. Even as of today, the margins that we have are just about the highest that paint companies get anywhere on the international markets, at least in sizable geographies. So there would be pressure, I must confess… margins are under pressure but that’s something that we will keep examining as we go forward.
Asian Paints:
I am starting a new thread for each company I am tracking and shall post all updates in the respective threads. All members are requested to also post reports, views and updates in these threads.Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products, acts of God and their pricing, product demand and supply constraints.Nothing in this article/report/thread is, or should be construed as an investment advice.
reports are attached--
CA. Rajesh Desai
CA. Rajesh Desai
RAJESH DESAI
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CA. Rajesh Desai
RAJESH DESAI
Asian Paints said before market hours today that Mumbai high court has approved the composite scheme for merger and demerger which envisages merger of PPG Coatings India (subsidiary of PPG in India) and AP Coatings (a wholly owned subsidiary of Asian Paints) with Asian PPG Industries (APPG) (existing Joint Venture between Asian Paints Group and PPG Group). The scheme then provides for the demerger of the Liquid Industrial Paints, Powder Coatings and Protective Coatings businesses from APPG into Asian Paints PPG (second Joint Venture Company). |
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CA. Rajesh Desai