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Asian Paints profit beats estimates as raw material costs ease

Workers assemble a car at the Tata Motors plant in Sanand, on the outskirts of Ahmedabad: Automotive demand in India has been cooling for more than a year amid a credit crunch.   © Reuters

MUMBAI (NewsRise) -- Asian Paints, India's largest paint producer, reported a better-than-expected 18% rise in first-quarter net profit, helped by lower raw material prices and strong demand for decorative paints at home.

Net income for the quarter ended in June stood at 6.55 billion rupees ($95 million), the company said in a statement on Wednesday. Analysts were expecting a net profit of 5.50 billion rupees, according to a Bloomberg poll. Revenue jumped 17% to 51.31 billion rupees.

The decorative business segment in India recorded "high double-digit volume growth," K.B.S. Anand, managing director and chief executive of Asian Paints, said in the statement. However, the automotive coatings business was affected by the severe slowdown in the automobile industry, he said, adding that the industrial coatings business, too, was hurt by demand slowdown.

Automotive demand in Asia's third-biggest economy has been cooling for more than a year amid a credit crunch and distress in rural markets. The slowdown in sales prompted many automakers including Maruti Suzuki India, the nation's biggest, to slash production in recent months. Poor monsoon rains, which are crucial to farm output, and tighter availability of credit squeezed consumer spending in Asia's third-largest economy, which expanded at the slowest pace in four years during January-March.

Asian Paints has been growing on the back of double-digit volume expansion in its decorative business. The company has been gaining market share in the segment from unorganized players. "Benign" raw material prices supported the margins for the entire coatings business, Anand said.

Softer crude prices were expected to aid margin expansion of companies such as Asian Paints which has higher exposure to crude derivatives.

"We remain positive on the business considering strong double-digit growth in the decorative paints segment," ICICI Direct Research wrote in a note after the earnings were released. "Being a market leader in the decorative paint segment, any price hike in raw material by Asian Paints would be easily passed on to its clients, thus maintaining operating margins at elevated levels."

India is an underpenetrated paints market in comparison with developed nations, with one of the lowest per capita consumption globally. Analysts expect the strong pace of urbanization, rising incomes, and growing aspirations for a better lifestyle to drive the industry's growth in the long run.

According to SBICAP Securities, India's paint market is likely to grow 10% on average between the fiscal year 2019 and 2022.

Shares of Asian Paints rose 3.4% in Mumbai trading on Wednesday, while the benchmark S&P BSE Sensex lost 0.4%.

--Dhanya Ann Thoppil

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