Asian Paints falls 4% on excise duty hike

Shares of Asian Paints fell on Monday by 4 per cent as the excise duty hike in Budget 2012 is set to hurt profit growth at the largest paints company. The budget hiked the excise duty rate for manufacturers to 12 per cent from 10 per cent. 

According to Kotak Securities, a stockbroking firm, in 2010-11, the excise duty accounted for 9.4 per cent of the company’s sales of Rs 7,706 crore.

According to another analyst estimate, the company’s operating profit (income minus expenditure) could be lower by 8.5 per cent after the budget.

The street is more worried about Asian Paint's ability of the company to pass on such a hike to consumers in a tough market. Analysts say that Asian Paints faces a tough task as consumers have already postponed decisions on spending money to paint their new homes or renovate existing homes. A hike in products could further hurt sales.

The budget reduces the import duty on titanium dioxide, a key ingredient for paint, by 2.5 per cent to 7.5 per cent.

This should benefit Asian Paints, Berger Paints, Kansai Nerolac Paints and Shalimar Paints. Shares of all companies except Asian Paints gained in value.

However, prices of titanium dioxide prices are at a record high and rose at least by 5 per cent since January 2012. The cut in the duty compensates for the hike in the price by global makers of titanium dioxide.

Asian Paints is the biggest maker of paints and the excise duty hike hurts the company the most in comparison to smaller players. The company’s market cap is Rs 29,465 crore.