Asian Paints’ rally may continue on demand recovery, lower GST

Over the past 12 years, Asian Paints has managed to upend the traditional maxim that rising crude oil prices often smudged the operating performance at paint makers. Recent earnings at India’s paints leader give further confirmation of just the opposite: that there is a strong positive correlation between rising oil prices and operating margins at the company. In its latest quarterly results, Asian Paints surprised the Street again with double-digit volume growth for the second consecutive quarter and higher margins. With recovery in demand and lower GST, the future appears more colourful for the largest paints company in India. For the June quarter, revenues increased 15 per cent to Rs 4,390 crore, driven by 13 per cent volume growth in the domestic business and a total price increase of 3.3 per cent in the last two quarters. On the margin front too, the company surprised the Street — gross margin expanded 40 basis points to 43.2 per cent despite inflation in the raw material prices (crude prices up by 40 per cent) and a 250-basis points jump in EBIDTA margins to 19.9 per cent. Net profit stood at Rs 571 crore, cent year on year, much ahead of expectations.