Asian, Berger Paints hit record highs on strong Q1 earnings, low oil price

Paint companies Asian Paints and Berger Paints rallied to their respective record highs on the BSE on Tuesday on the back of strong June quarter earnings and fall in crude oil prices.
Berger Paints climbed 5 per cent to Rs 352 after the company posted a better-than-expected 31 per cent year-on-year (YoY) growth in consolidated net profit at Rs 164 crore in Q1FY20, on the back of strong volume growth. The stock surpassed its previous high of Rs 349 touched on August 29, 2018 in intra-day trade.

Operational revenue grew 16 per cent at Rs 1,717 crore on YoY basis. EBITDA (earnings before interest, tax, depreciation and amortization) margin expanded 170bps at 17.8 per cent from 16.1 per cent in previous year quarter.

Asian Paints too hit new high of Rs 1,554, up 2 per cent, surpassing its previous high of Rs 1,550 touched on August 5, in intra-day trade. Post the Q1 results, the stock has outperformed the market in the past two weeks by surging 9 per cent, as compared to 3 per cent decline in the S&P BSE Sensex.

Asian Paints’ Q1FY20 consolidated revenue, EBITDA, and net profit grew 17 per cent, 24 per cent, and 18 per cent to Rs 5,130 crore, Rs 1,160 crore and Rs 660 crore, respectively.

Operating performance exceeded analysts’ predictions with ‘high double-digit’ volume growth – in complete contrast to talks of slowing consumption demand in the country as evidenced in most consumer staples results.

Analysts at JM Financial Institutional Securities expects Asian Paints to remain in favour on the back of this result, though a large part of the near-term stock-upside appears to have been priced in with the stock trading at 53x on a one-year forward basis

“We remain optimistic and expect Asian Paints’ volume growth of around 15 per cent in decorative paints during FY20e and FY21e backed by capacity addition and higher penetration of lesser penetrated geographies”, analysts at Antique Stock Broking said in result review.

Going ahead, the brokerage firm expects double-digit volume growth to continue during the next two years, led by capacity addition and expansion in distribution. Headwinds arising from capacity addition should be more than be compensated by healthy volume growth, leverage benefits and cost-control measures taken by the company.

Meanwhile, global oil benchmark Brent futures fell more than 3 per cent on Monday on global growth concerns. The paint companies use crude derivatives, and hence falling oil prices reduce their input costs.

Among other paint stocks, Kansai Nerolac Paints surged 4 per cent to Rs 449, while Akzo Nobel India up 2 per cent at Rs 1,698 on the BSE. In comparison, the benchmark S&P BSE Sensex was up 0.33 per cent at 36,819 points at 11:28 am.

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