Paint companies such as Asian Paints, Berger Paints, Kansai Nerolac are likely to continue with strong growth momentum in Q1 volumes, particularly in the decoratives segment post a strong second half of 2015-16, according to ICICI Securities.
According to the brokerage house, both Asian Paints and Berger Paints are likely to post a volume growth of 11-12 per cent for the first quarter ended June 30, 2016. However, Kansai Nerolac is expected to post 10-11 per cent overall volume growth due to lower growth in industrial paints. Triggered by price reduction by major paint companies in the last quarter of 2015-16, topline growth is projected to be in the the range of 8-10 per cent.
“We witnessed a sequentially upward movement in prices of crude oil and derived raw material prices during April-June 2016, the same continued to be down YoY, which should lead to margin improvement YoY during the quarter,” ICICI Securities said in a report. Gross margins are expected to improve by 191-299 basis points for Asian Paints, Berger Paints and Kansai Nerolac, while operating profit margins are expected to go up by 70-150 basis points.
ICICI Securities sees strong net profit growth of 14 per cent for Asian Paints and 34 per cent for Berger Paints.
Pidilite, though not a pureplay paints company, has similar demand dynamics as the paints sector. ICICI Securities sees the company to post sales growth of 10 per cent. On a full year basis, ICICI Securities expects the sector to post 14-15 per cent volume growth, particularly due to a strong second half as consumption demand to improve on account of 7th Pay Commission payout and expectations of strong monsoon this year.
For the quarter ended March 31, 2016, Kansai Nerolac reported 920 per cent rise in net profit figures at Rs 615.77 crore agianst Rs 60.37 crore in the corresponding quarter a year ago. Asian Paints and Berger Paints reported 14 per cent and 34 per cent year-on-year rise in net profit during the quarter under review.
On a year-to-date basis, shares of Asian Paints, Berger Paints and Kansai Nerolac surged 15 per cent, 18 per cent and 19 per cent to Rs 1009.50, Rs 308.50 and Rs 318.25, respectively, till July 13.