Paint Sector Revival? Pramod Gubbi Decodes Asian Paints Earnings & Paint Sector Outlook | ET Now

本站添加: 2026-06-01

[00:00:13]Welcome back. You're watching Closing Bell.

[00:00:16]And the market currently hovering just around 23,750 mark trying to hold on to that level at this point in time.

[00:00:24]Moving on to uh market guest Pramod Gubbi who is from Marcellus Investment Managers joins us.

[00:00:33]Pramod, hi. Uh you know, incidentally you have the Asian Paints number which have come out. Top line up nearly 10%.

[00:00:41]Good jump in PAT and margins as well.

[00:00:44]How do you look at the paint sector and Asian Paints if you look at that company?

[00:00:50]>> Yeah, I think the key change has been the industry structure.

[00:00:55]The sector after a long period of very stable um you know, competitive intensity went through big new entry from couple of new entrants which increased the competitive intensity over the last couple of years.

[00:01:08]What we're seeing now is that intensity stabilizing again.

[00:01:12]Looks like you know, the market shares have settling in. Um and that's reflecting in the volume growth and the margin pressures also easing in.

[00:01:22]However, in the short run of course the concern around input cost is raw material largely crude derivatives.

[00:01:29]Given where crude oil prices are, that remains an overhang. But from a longer term perspective, I think it is encouraging to see that the competitive intensity is stabilized. And and yeah, I mean once once crude oil prices cool down, you can expect a much more stable earnings growth trajectory for the sector as a whole and within that Asian Paints as well.

[00:01:51]>> Hi, this is Harsha by the way.

[00:01:54]So what would your top concern or you know, top question to possibly uh you know, Asian Paints be ahead of the con call. What is it that you will really look out for in terms of commentary?

[00:02:08]>> Um so again we look at it from a distance, but I guess on the ground they'll have better sense in terms of the feedback from the dealership as far as competitive intensity is concerned because that's been their driver at the margin over the last couple of years.

[00:02:27]But over the last couple of quarters, you've seen some sense of stability returning here. You would want to affirm that that there is no more aggression from the from the new entrants.

[00:02:39]And secondly, Asian Paints itself has invested a lot in terms of you know, vertical integration. They're bringing in some of the raw material manufacturing in-house which not only expands the margins, but also gives an advantage over competition in terms of pricing. So like to understand where where that is because it is a long gestation project, but you know, we're nearing that time frame where it comes on stream. So these two can be key drivers both industry structure as well as raw material price integration.

[00:03:19]>> Mhm. Promote uh aside of Asian Paints, have you had a look at other paint companies as well? How the quarter has been? Is the pricing pressure pricing you know, freedom back to many of the players? Are they able to pass on the prices?

[00:03:38]>> Yeah, I mean it's we're at the end of the real estate cycle and typically building materials tend to benefit.

[00:03:45]We're saying not just in terms of paints across late stage building material companies, volume growth has been pretty good.

[00:03:52]Whether it's you know, plywood or electricals or pipes.

[00:03:57]So, we're seeing the benefit of that.

[00:03:59]To that extent, demand environment is much better than what it used to be.

[00:04:04]Right. At the same time, we're seeing easing competitive pressures. To that extent, there is pricing power. It is still a consolidated industry for that matter. To that extent, yeah, I mean it augurs well for margins barring the short-term concern around crude oil prices or raw material prices.

[00:04:24]>> Hm. And and what do you make of the earnings from what you just take a bit of a step back? Earnings overall, we're at the end now of the Q4 numbers. Uh Uh it's looking like a very decent set of numbers that India Inc has come out with. 13% growth on the Nifty 100 basket in terms of profitability YOY. A bulk of that coming in Q4. So, the QOQ growth numbers looking extremely strong overall. Uh Uh sustainability really the question?

[00:04:54]>> Absolutely. I think we're reversing the situation from the last couple of years.

[00:04:58]Last couple of years, the macro looked quite sanguine, whereas we were struggling to see earnings growth just when valuations were pretty high. I think that earning cycle seems to be bottoming out based on what we've seen in Q4. Clearly, there are more upgrades than downgrades.

[00:05:14]However, at the same time, while the micro seems to be looking up, we're facing macro headwinds in the form of crude oil prices and all the attendant issues that comes with that in terms of rupee depreciation, um inflation, fiscal deficit, rising bond yields, and so on.

[00:05:31]Um so, we've sort of completely reversed the situation between the macro and micro. Now, clearly, the macro also puts some challenges in the micro, like we discussed in the case of paints. A whole host of other sectors will face raw material price pressures. Not all of them will have the pricing power to pass on those costs as well. Alongside that, interest costs are likely to go up, borrowing costs are likely to go up. So, just when we thought that the earning cycle is bottoming out, we are faced with these macro headwinds, which puts a question mark in terms of the sustainability of the recovery in earnings. Um so, I mean, the jury is out in terms of how long this you know, pressure or the West Asia situation persists, which in turn has an impact on the Indian macro and the micro through the conduit of crude oil prices.

[00:06:20]Um barring that, I think we we should be looking at bottoming out the earning cycle.

[00:06:27]>> You know, Natco Pharma's numbers also came out. I just want to quickly You know, Natco Pharma's numbers also came out. I just want to quickly highlight them for viewers because the stock's taking a knock of 9%.

[00:06:39]Uh the revenue is coming at 740 crore versus 1221 crore on a YOY basis, down 40%.

[00:06:46]EBITDA is down 77%.

[00:06:48]Margins have contracted from 45% to 17%.

[00:06:53]And profitability has fallen 34% on a YOY basis from 407 to 268. That stock taking a bit of a nosedive in trade.

[00:07:01]There you go. You can see that move. Uh 8 and 1/2% lower on Natco Pharma.

[00:07:08]Factors the other one.

[00:07:10]I mean, the numbers don't look half bad.

[00:07:12]Okay, so there's margin erosion there.

[00:07:14]Actually, in fact, margins have come in at 3% versus the 8% number same time last year. I Pramod, I'll just come to you in a minute. I'm just going to quickly try and analyze these numbers.

[00:07:26]Uh so, margins have come off quite sharply on a YOY basis.

[00:07:31]QOQ, there was negative margins in December. So, those margins turning positive at least QOQ hint at some recovery.

[00:07:39]Uh EBITDA has come in at 48 crore versus 84 crore. Revenue has come in at 1484 crore. So, the revenue in fact has come in below both the Q2 as well as the Q3 numbers. In the In the Q2 it was 1600 odd crore and in Q3 it was 1550 plus crore. In Q4 it's sub 1500 crore. So, maybe that's one of the pieces which the street is worried about. But that that loss EBITDA loss as well as bottom line loss seems to be reversing. I'm talking about FACT this time around which is FACT.

[00:08:15]So, so you've got that stock also under a bit of pressure. So, both of those names Natco Pharma and FACT.

[00:08:23]This space overall Pramod has done fairly well for itself this earning season. You've seen chemical stocks, fertilizer stocks actually doing fairly okay. These may be you know, one-offs in terms of the numbers and and the street really taking taking not taking it well.

[00:08:41]But give us a sense how would you play the theme fertilizer, chemicals, pharmaceuticals? How are you playing that basket?

[00:08:49]>> I think pharmaceuticals and chemicals particularly is in a is in a good position both from a structural perspective as well as cyclical perspective. We're seeing the worst of the US pricing pressure behind us. We're also seeing the worst of the excess supply from China particularly in chemicals also easing up which which augurs well from cyclical standpoint.

[00:09:15]To that extent it is also back particularly in pharma valuations aren't that that onerous and and hence I think you know, we are in a good point in the cycle for for both these sectors.

[00:09:29]>> You know, if you look at some other pharma stocks as well, we spoke about Natco but Wockhardt up 17% in today's trade. Uh some of the pharma companies are doing well, especially with those which have a domestic footprint. Uh what's your take in Wockhardt if you look at it or you know, the domestic exposed pharma companies?

[00:09:51]>> Well, absolutely. Like I said, you know, healthcare in general is a fairly structural theme.

[00:09:58]We've been talking about for for a while across hospitals, diagnostics, and pharmaceutical from a domestic standpoint. Um and and that continues to play out both in terms of earnings, new launches. And to that extent, I think it's one of the few places where you're seeing pretty reasonably strong structural growth prospects at the same time reasonable valuations as well. So, that remains, you know, one of the bigger allocations for us.

[00:10:31]>> Okay.

[00:10:32]>> Pramod, I'm going to have to pause this conversation, take a quick commercial which is mandatory unfortunately, come back to you, quiz you more. What are you buying? What are you selling? It's a tricky environment. We'll try and take that question with Pramod once we're back.

[00:11:07]Thanks for staying with us and Pramod obviously with us as well.

[00:11:10]Pramod Gubbi of Marcellus Investment Managers.

[00:11:14]Pramod, give us a sense. So, it's a tricky market. What do you buy? What do you sell? Do you continue to hold? How should one play it?

[00:11:24]>> Well, I mean, like I said, uh at the margin, it's the macro which is crucial, but we tend to be bottom-up investors. To that extent we're macro aware, but we're not basing our investment decisions on that. Having said that, I think purely from a valuation standpoint in a market where yes, valuations have somehow corrected, time corrected in the last 2 years, they're not as expensive across the market as they used to be, but still I think across the board you can't say that you're seeing compelling opportunities from a valuation perspective. So, purely from a valuation perspective, private sector financials continue to demonstrate that they are at compelling undemanding valuations. But from a growth perspective, we talked about health care being one of the areas where we're seeing structural growth opportunities.

[00:12:12]The other from a macro perspective, which has given us an opportunity, is manufactured exports.

[00:12:17]I don't think even in any scenario the rupee will reverse materially. You might see a little bit of a reversal, but to this extent the rupee depreciation has made some of our manufactured exports fairly competitive. Just when the rich world, the West, is reindustrializing itself, particularly in the areas of the electricity supply chain whether it's turbines or transformers, we're seeing pretty good growth prospects globally. At the same time, there are some very good high-quality Indian companies in this supply chain, and they get an additional bit of a tailwind in terms of the rupee depreciation to grab further market share. So, these three areas, I think, financials, health care, and manufactured exports would be um would be where we see a lot more opportunity.

[00:13:07]>> Mhm.

[00:13:07]Promote, uh aside of consumption, are you also looking at power and capital goods?

[00:13:12]Because power stocks have been running up off for or in the last few weeks. Do you think that there is uh investor interest back in power?

[00:13:23]>> No, absolutely. Like I said, irrespective of how this AI-driven rally pans out, AI is here to stay. And as we've learned, the limitation for AI's progress today is electricity.

[00:13:36]So, therefore, there is a bit of a rush from pretty much across the world in terms of putting up new power generation capacity. And therefore, anybody supplying into that into that demand is likely to benefit.

[00:13:52]And it's not just in India, across the world. More so in the Western world where bulk of the investments in data centers is happening. That's where the energy needs are quite quite rampant. And and we do have some very high-quality Indian capital goods companies which which play into that demand opportunity. Of course, India will also have to invest in terms of power generation if it's not not if the fact that AI will be reality going forward.

[00:14:23]So, whether it's domestic or international, I think playing into that supply chain is a very good structural opportunity.

[00:14:30]>> Okay. Pramod, thank you so much for coming in and speaking to us and giving us that Pramod, thank you so much for coming in and speaking to us and giving us that perspective today.

[00:14:40]>> You're welcome.

[00:14:42]>> All right.