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Asian Paints - High raw material cost hits margins…
Asian Paints’ Q3FY11 results were in line with our estimates as sales
grew 29.6% to | 2099.6 crore. The company took an average price hike of
2.9% in the quarter and 11.36% hike in the current fiscal year. Volume
growth remains at ~10% mainly led by strong demand from decorative
paints segment. EBITDA margins were hit by 320 bps to 16.4% due to the
increase in raw material cost. Raw material cost to sales increased from
56.3% in Q3FY10 to 59.7% in Q3FY11 as crude-based derivative
commodities prices (PAN and Penta) witnessed a steep rise. The raw
material cost index for the company stood at 115.4 on December 31, 2010
compared to 112.4 on September 30, 2010. Other income has risen 16.1%
to | 19.4 crore. Consolidated net profit increased 11.1% to | 220.3 crore.
ƒ Standalone performance
On a standalone basis, the company’s net sales grew 37.3% to |
1754.2 crore on the back of strong decorative demand led by
repainting in the festive quarter. Margins dipped by ~310 bps from
20.4% in Q3FY10 to 17.19% in Q3FY11. Net profit grew 15.6% to |
206.6 crore. The moderate growth can be attributed to high raw
material cost for the company. Asian Paints entered into a second
joint venture with the PPG group. The joint venture would work to
enhance the existing non-decorative coatings presence in India by
also establishing a second 50-50 joint venture.
Valuation
At the current market price of | 2600, the stock is trading at 28.7x its FY11E
EPS of | 92.3 and 23.9x its FY12E EPS of | 110.8. With the increase in raw
material prices, margins for the company continue to remain under
pressure as the company would be unable to pass on the entire cost.
However, we believe volume growth for the company continues to remain
strong as major part of the growth comes from repainting. Hence, we are
valuing the stock at 26x its FY12E EPS of | 110.8 and recommending a BUY
rating on the stock with a target price of | 2890.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Paints - High raw material cost hits margins…
Asian Paints’ Q3FY11 results were in line with our estimates as sales
grew 29.6% to | 2099.6 crore. The company took an average price hike of
2.9% in the quarter and 11.36% hike in the current fiscal year. Volume
growth remains at ~10% mainly led by strong demand from decorative
paints segment. EBITDA margins were hit by 320 bps to 16.4% due to the
increase in raw material cost. Raw material cost to sales increased from
56.3% in Q3FY10 to 59.7% in Q3FY11 as crude-based derivative
commodities prices (PAN and Penta) witnessed a steep rise. The raw
material cost index for the company stood at 115.4 on December 31, 2010
compared to 112.4 on September 30, 2010. Other income has risen 16.1%
to | 19.4 crore. Consolidated net profit increased 11.1% to | 220.3 crore.
ƒ Standalone performance
On a standalone basis, the company’s net sales grew 37.3% to |
1754.2 crore on the back of strong decorative demand led by
repainting in the festive quarter. Margins dipped by ~310 bps from
20.4% in Q3FY10 to 17.19% in Q3FY11. Net profit grew 15.6% to |
206.6 crore. The moderate growth can be attributed to high raw
material cost for the company. Asian Paints entered into a second
joint venture with the PPG group. The joint venture would work to
enhance the existing non-decorative coatings presence in India by
also establishing a second 50-50 joint venture.
Valuation
At the current market price of | 2600, the stock is trading at 28.7x its FY11E
EPS of | 92.3 and 23.9x its FY12E EPS of | 110.8. With the increase in raw
material prices, margins for the company continue to remain under
pressure as the company would be unable to pass on the entire cost.
However, we believe volume growth for the company continues to remain
strong as major part of the growth comes from repainting. Hence, we are
valuing the stock at 26x its FY12E EPS of | 110.8 and recommending a BUY
rating on the stock with a target price of | 2890.
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