Asian Paints: Destocking Ahead of GST Impair Sales Volumes

Asian Paints has announced the first quarter results of financial year 2017-2018 (1QFY18). The company has reported a 4.9% YoY rise in the topline and a 20.1% YoY decline in the bottomline during the quarter.

Performance summary:

• Total income from operations grew by 4.9% YoY during 1QFY18. The decorative business segment in India registered a low single-digit volume growth during the quarter. Most of the business in this segment was affected in the month of June due to the implementation of Goods and Services Tax (GST). Sales volumes were affected largely due to de-stocking in the trade channel (B2B dealers).
• The automotive coatings JV (PPG-AP) witnessed improved performance on the back of good demand conditions in the auto OEM segment and general industrial business segment. However, the auto refinish market was impacted by the GST transition. The industrial coatings JV (AP-PPG) also saw good growth in industrial liquid paints segment. Margins, however, were impacted by high material costs for both of these businesses during the quarter.
• On the international front, units in Nepal, Bangladesh, and Oman witnessed good topline growth. However, the overall performance of international operations was affected by currency devaluation in Egypt and unavailability of forex in Ethiopia.
• The kitchen business (Sleek) and bath business (ESS ESS) in the home improvement category witnessed low growth during the quarter. Most of the brunt in this segment was seen during the month of June on the back of GST transition effect.
• Operating profit (EBITDA) in 1QFY18 fell by 18.5% YoY on rising operating expenses which jumped 10.8% YoY during the quarter. Operating margins stood at 15.7% in 1QFY18 as against 20.2% reported in 1QFY17.
• Net profit fell by 20.1% YoY. The fall here was mainly attributed to rising finance costs, which increased 27.4% YoY during the quarter. Net profit margins stood at 10.1% in 1QFY18 as compared to 13.3% in 1QFY17.
  
  

  Consolidated financial snapshot

  (Rs m)	1QFY17	1QFY18	Change
  Total Income from operations	40,317	42,283	4.9%
  Total Expenses	32,155	35,629	10.8%
  Operating Profit (EBITDA)	8,162	6,654	-18.5%
  Operating Profit Margin (%)	20.2%	15.7%
  Depreciation	844	905	7.2%
  Finance Cost	63	80	27.4%
  Other Income	719	783	9.0%
  Profit before tax	7,973	6,452	-19.1%
  Exceptional Items	0	0
  Tax	2,593	2,160	-16.7%
  Minority Interest	175	133	-23.9%
  Share of Associates	126	90
  Profit after tax from continuing operations	5,331	4,249	-20.3%
  Profit from discontinued operations	19	25
  Total profit for the period	5,351	4,274	-20.1%
  PAT Margin	13.3%	10.1%
  No. of shares (m)		959.2
  Basic diluted earnings per share (Rs)		19.10
  P/E ratio (x) *		59.4

  *Based on trailing 12 month earnings