Asian Paints

The company posted fantastic numbers for Q2FY14 and not surprisingly, the stock hit a new 52-week high yesterday at Rs.529.35. Almost every brokerage house has put out either a sell or a caution on the stock and most expected poor numbers for the company. Our Editor was probably the only one to stick out his neck and put a “buy” on the stock, expecting very good performance. His deduction proved spot-on and those who had invested on his conviction, made handsome gains.

As against expectations of Rs.250 to 260 crore from various brokerage houses, the company posted a consolidated net profit at Rs.327 crore, up 37% (YoY). This was on the back of very strong volume growth. Its income from operations rose 18% at Rs.3115 crore and operating profit showed a much better rise, up 34% at Rs.511 crore,. In the decorative business in India was better than that in Q1, with good growth in Tier 2 & Tier 3 cities. The company has two price hikes during Q2 – on 1st Aug 2013 by 1% and on 1st Sept 2013 by 1.8%. Cumulative price increase for H1-FY14 was around 4.1% and this too helped the overall performance. The other two segments did not fare too well. In the Industrial Coatings Business (APPPG), demand conditions remained subdued due to the lack of any major projects in the current year with many expansion projects and capital expenditure getting postponed. PPGAP, the automotive coatings JV also witnessed subdued demand due to poor demand conditions in the auto sector.

Its international business registered good growth with volume sales exceeding 1 lakh KL mark in the first six months of FY 2014. Middle East and Asia did well. For current H1, the Caribbean showed a 10% (YoY) growth, Middle East was up 13%, Asia rose the best at 26% and South Pacific was up 17%.

The Capex plan for FY 2014 at the standalone company level is around Rs. 200 crores towards facility optimization and regular maintenance. During the conference call, the company gave a cautious outlook for the future. It has stated that domestic demand is expected to remain challenging and uncertain. Some favorable movement in fuel prices and softening of interest rates for consumer loans could create festive demand for automotives. Continued lack of investments (public as well as private) & slowdown in economy is expected to impact Industrial coatings demand. On the international front, political instability would be a key risk in important markets like Egypt, Bangladesh and Nepal.