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ASIAN PAINTS - (APNT IN, INR 2,621, BUY)
n Strong sales growth; led by festive season and weak Q2FY11
Asian Paints’ consolidated net revenue of ~INR 21 bn is above our estimate of INR 18.8
bn. PAT is at ~INR 2.2 bn against our estimate of INR 2.4 bn. Domestic market displayed
remarkable growth with revenues rising 37% Y-o-Y, to ~INR 17.5 bn. The company in
our view had a robust volume growth of ~28% in domestic business. However, overseas
market remains sluggish with merely 1% Y-o-Y sales growth.
n Domestic market- EBITDA margins impacted; 391bps surge in COGS
The company in domestic market posted EBIDTA of ~INR 3 bn in Q3FY11 registering a
healthy ~15% Y-o-Y growth. EBIDTA margins however dipped by 316bps Y-o-Y to
17.2%, led by 391bps surge in COGS. Employee cost dipped by 74bps Y-o-Y and other
expenditure remained flat. In spite of the heightened aggressiveness of the competitors,
it is credit to the company that it is able to maintain the ad spends as the percentage of
sales at constant level. Input prices (Titanium dioxide and crude related inputs) have
increased considerably. The company has taken 4 price hikes in FY11: 4.15% on May 01,
2.6% on July 01, 1.2% on August 01, 2010 and ~3% on December 2010 (we had
pointed this out earlier).
n Overseas operation: disappoints
Revenues in overseas market rose merely 1% Y-o-Y to INR ~INR 3.5 bn. However EBIT
declined 22% Y-o-Y to INR 370 bn and PAT dipped 31% Y-o-Y to INR 137 bn. EBITDA
margins in overseas business dipped by 440bps to 12.6%.
n Outlook and valuations: Positive; ‘BUY’
The company disappointed on margin front in the current quarter. This was primarily on
account of sharp upmove in raw material cost. Also the last price hike (~3% in
December 2010) taken by the company, had minimum impact in the current quarter due
to low priced inventory pipeline. In Q4FY11, Company will have full benefit of 3% price
hike. The company has a dominant market share, is a leveraged play to GDP and
domestic consumption, and largely caters to retail consumers, which are significant
advantages. Also, the company’s board approved joint venture with PPG, primarily to
expand growth of its non-decorative business. The proposed JV will service the
protective, industrial powder, industrial containers and light industrial coatings markets
and will thus expand customer base. We maintain ‘BUY’ on the stock and rate it ‘Sector
Outperformer’ on relative return basis.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ASIAN PAINTS - (APNT IN, INR 2,621, BUY)
n Strong sales growth; led by festive season and weak Q2FY11
Asian Paints’ consolidated net revenue of ~INR 21 bn is above our estimate of INR 18.8
bn. PAT is at ~INR 2.2 bn against our estimate of INR 2.4 bn. Domestic market displayed
remarkable growth with revenues rising 37% Y-o-Y, to ~INR 17.5 bn. The company in
our view had a robust volume growth of ~28% in domestic business. However, overseas
market remains sluggish with merely 1% Y-o-Y sales growth.
n Domestic market- EBITDA margins impacted; 391bps surge in COGS
The company in domestic market posted EBIDTA of ~INR 3 bn in Q3FY11 registering a
healthy ~15% Y-o-Y growth. EBIDTA margins however dipped by 316bps Y-o-Y to
17.2%, led by 391bps surge in COGS. Employee cost dipped by 74bps Y-o-Y and other
expenditure remained flat. In spite of the heightened aggressiveness of the competitors,
it is credit to the company that it is able to maintain the ad spends as the percentage of
sales at constant level. Input prices (Titanium dioxide and crude related inputs) have
increased considerably. The company has taken 4 price hikes in FY11: 4.15% on May 01,
2.6% on July 01, 1.2% on August 01, 2010 and ~3% on December 2010 (we had
pointed this out earlier).
n Overseas operation: disappoints
Revenues in overseas market rose merely 1% Y-o-Y to INR ~INR 3.5 bn. However EBIT
declined 22% Y-o-Y to INR 370 bn and PAT dipped 31% Y-o-Y to INR 137 bn. EBITDA
margins in overseas business dipped by 440bps to 12.6%.
n Outlook and valuations: Positive; ‘BUY’
The company disappointed on margin front in the current quarter. This was primarily on
account of sharp upmove in raw material cost. Also the last price hike (~3% in
December 2010) taken by the company, had minimum impact in the current quarter due
to low priced inventory pipeline. In Q4FY11, Company will have full benefit of 3% price
hike. The company has a dominant market share, is a leveraged play to GDP and
domestic consumption, and largely caters to retail consumers, which are significant
advantages. Also, the company’s board approved joint venture with PPG, primarily to
expand growth of its non-decorative business. The proposed JV will service the
protective, industrial powder, industrial containers and light industrial coatings markets
and will thus expand customer base. We maintain ‘BUY’ on the stock and rate it ‘Sector
Outperformer’ on relative return basis.
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