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Asian Paints |
Volume Allude, Maintain HOLD |
HOLD
CMP: Rs 2,503 Target Price: Rs 2,510
n Asian Paints (APL) reported mixed performance – revenue growth at 5% yoy missed expectation and APAT growth at 4.4% yoy meets expectation
n Volume growth alluded in the quarter- on back of high volume growth in Q1FY11 leading to pipeline filling and higher dealer inventory
n Maintain earnings for FY11E (Rs92.2/Share) and FY12E (Rs104.6/Share) – Maintain ‘HOLD’ rating with target price of Rs2510/Share
APL reports mixed performance in Q2FY11- revenue misses expectation
but APAT meets expectation
APL reported mixed performance in Q2FY11 – revenue growth at 5% yoy to Rs18.1 bn
is lower then expectation, but APAT growth at 4.4% yoy meets expectation. Domestic
business revenue growth was 6% yoy to Rs14.7 bn, much lower then expectations.
Even, international business growth was muted at 1% yoy to Rs3.4 bn. Considering 8%
price-increase taken on paints portfolio in Q1FY11, volume-led growth was virtually
absent in the quarter. Ebidta margins expanded by 30 bps yoy to 19.0% in Q2FY11 and
Ebidta growth stood at 8.0% yoy to Rs3.5 bn. Consequently, APAT growth at 4.4% yoy
to Rs2.1 bn meets our expectations.
Volume growth alluded in the quarter, should even-out in ensuing
quarters
Q1FY11 had seen robust volume growth of 18-20% yoy – strongest volume growth in
recent quarters. We had highlighted probability of higher dealer sales and pipeline
filling- partial reason for strong volume growth. Though, we expected volume growth to
normalize in ensuing quarters, volume performance in Q2FY11 is sharply below
estimates. We maintain our volume growth assumptions of 15% in FY11E and FY12E.
Maintain earnings estimates for FY11E and FY12E, Maintain ‘HOLD’ rating
We maintain earnings estimates of Rs92.2/Share and Rs104.6/Share for FY11E and
FY12E. We had factored the price hikes undertaken and fine-tuned margin expectations
from 17% to 19% during earnings revision in Q1FY11. So far, Asian Paints brand has
showcased strong efficacy and withered onslaught of competition, but does not
guarantee the continuation of performance in future- which is key risk to our earnings
estimates. APL trades at 23.9X FY12E – leaving little room for upsides. We maintain our
HOLD rating with target price of Rs2510/Share.
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