Shareholders await Asian Paints’ account of a lost summer

• Asian paints share price has gained over 14% in the past one month.
• Asian paints forayed into the hand and surface sanitiser category with the launch of the Viroprotek range of hand and surface sanitisers.
• The anti-bacterial paint with Silver Ion Technology which claims to kill 99% of infection-causing bacteria on the painted surfaces.

Any other year, the first quarter would have been one of the best times for Asian Paints. It has clocked double-digit profit growth in every one of the last three years in its decorative paints segment as people renovate homes during the traditional wedding season, and ahead of the incoming monsoons.

However, it wasn’t the same this year. The repainting segment forms over 70% of the overall decorative paints industry in India and with COVID hitting pockets, analysts think home renovation is not going to be on people’s minds anytime soon.

Therefore analysts expect Asian Paints’ revenue to fall at least 58.8% and profit to fall at least 90.8% between April and June 2020 compared to the same time last year.


In the past three months, not only most of their manufacturing units were shut due to the lockdown, but people even postponed weddings, and many were reluctant to allow painters in the house immediately. Production of automobiles, which form a big chunk of the company’s revenue, was also hit and it isn’t likely to recover in a hurry.

The prolonged monsoons and floods in different states impacted decorative paints, adding to woes of the paint maker.

Despite all the downsides people are betting on the company’s long term prospects and management fueled hopes. In a post-quarter investor call last month, the company said that the business has resumed in most markets with a good pickup in smaller towns. The management indicated that post lockdown May witnessed pent-up demand, which was normalised in June.

And on those hopes, Asian paints share price has gained over 14% in the past one month.


Pilling up on non-core business

With a pretty bleak outlook of the paint industry, Asian paints forayed into the sanitiser business with the launch of the ‘Viroprotek’, a range of hand and surface sanitisers.

The company is also investing in a parallel distribution system to reach normal fast-moving consumer goods shops to take sanitisers to them. But analysts believe the business comes with its own set of problems since the market is primarily dominated by already established consumer staple brands like HUL and ITC.

Although the company capitalised on the existing Royale Health Shield brand. The anti-bacterial paint with Silver Ion Technology which claims to kill 99% of infection-causing bacteria on the painted surfaces. It also kicked off a safe painting campaign to enable customers to paint their houses even during the pandemic.

Bleak future outlook

According to a report from Sharekhan broking firm, the Indian paints industry has a positive correlation with GDP. And, with GDP projected to contract largely in the current fiscal year due to coronavirus induced lockdown hitting the economy, paint sales are likely to remain muted.

“The first half of the current financial year will be affected by lockdown, supply disruption and non-availability of painters. However, things are gradually expected to improve in H2FY2021,” according to the report.

The demand for industrial coatings and automotive paints is also expected to remain muted for at least a year with consumer confidence and discretionary spending taking a worst hit.


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