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Asian Paints ------------------------------------------------------------------- Maintain OUTPERFORM
Strong outlook on demand and pricing power
● Asian Paints (APNT) 3Q11 revenue grew much ahead of our
forecast (>30% YoY). Consol margins, however, disappointed by
240 bp, leading to a 6% miss in EBITDA.
● While the postponement of sales due to prolonged monsoon and
a late festive season contributed to the exceptional revenue
growth in 3Q11, retail decorative paint demand remains robust.
Demand for non-auto industrial paints still remains muted.
● A lag in price increases – with the intent to avoid pricing action
during the festive season – mainly impacted margins in 3Q11
(-200 bp QoQ). However, pricing power in general remains strong
– APNT raised prices by about 11% YTD (the highest annual hike
in the past decade). Helped by the recent price increase (about
3% in Dec), we expect margins to recover in 4Q11.
● We factor in the higher revenue growth (est. up 2%) and higher
commodity costs (margin est. down 80 bp) in our FY11 forecast.
Our consol. FY11E EPS falls 3% (standalone by 4%), while our
target price marginally falls to Rs3,043. We maintain an
OUTPERFORM.
Asian Paints reported strong revenue growth (> 30%) in 3Q11. Lower
margins (-240 bp vs est), however, led to a 6% miss in EBITDA
Domestic demand and pricing power remain robust
While revenue growth in 3Q11 saw a spill-over of demand from 2Q
due to prolonged monsoon and a late festive season, it was well
supported by strong broad-based demand in decoratives across the
country. Rural areas and small towns, in particular, continue to fare
better than larger cities. Demand for non-auto industrial paints,
however, still remains weak.
APNT continues to see high commodity cost inflation (YTD costs up
15% on FY10 average) and management expects raw material prices
to remain firm, at least in the near term.
APNT avoided taking any pricing actions during the festive season,
thereby impacting margins in 3Q11 (down 200 bp QoQ and 320 bp
YoY). However, the industry, in general, continues to enjoy strong
pricing power. APNT has taken price increases of more than 11% in
FY11 YTD (the highest annual increase in the past decade). The most
recent price hike of about 3% in Dec is expected to cover the increase
in input costs to date. We build in some margin recovery in 4Q11
(about 140 bp QoQ), and expect FY11 consolidated margins at 18%.
International markets – challenging environment
APNT continues to face a challenging demand environment in most of
its international markets. Its South Asian operations, though, have
performed well. While subsidiary financials are not strictly comparable
on a YoY basis (due to divestments last year), implied margins for the
international business have remained steady sequentially.
Changes to estimates
We adjust our FY11 estimates for the higher revenue as well as
higher commodity costs seen so far. We raise our revenue estimates
by 2%, but reduce margins by 80 bp (100 bp on standalone). Our
consolidated FY11E EPS falls 3% (standalone falls 4%). Our target
price marginally falls to Rs3,043 (from Rs3,045). At 23x FY12E EPS
and forecast earnings growth of 26% over FY11-13E, we find the
stock attractive at current levels. We maintain an OUTPERFORM.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Paints ------------------------------------------------------------------- Maintain OUTPERFORM
Strong outlook on demand and pricing power
● Asian Paints (APNT) 3Q11 revenue grew much ahead of our
forecast (>30% YoY). Consol margins, however, disappointed by
240 bp, leading to a 6% miss in EBITDA.
● While the postponement of sales due to prolonged monsoon and
a late festive season contributed to the exceptional revenue
growth in 3Q11, retail decorative paint demand remains robust.
Demand for non-auto industrial paints still remains muted.
● A lag in price increases – with the intent to avoid pricing action
during the festive season – mainly impacted margins in 3Q11
(-200 bp QoQ). However, pricing power in general remains strong
– APNT raised prices by about 11% YTD (the highest annual hike
in the past decade). Helped by the recent price increase (about
3% in Dec), we expect margins to recover in 4Q11.
● We factor in the higher revenue growth (est. up 2%) and higher
commodity costs (margin est. down 80 bp) in our FY11 forecast.
Our consol. FY11E EPS falls 3% (standalone by 4%), while our
target price marginally falls to Rs3,043. We maintain an
OUTPERFORM.
Asian Paints reported strong revenue growth (> 30%) in 3Q11. Lower
margins (-240 bp vs est), however, led to a 6% miss in EBITDA
Domestic demand and pricing power remain robust
While revenue growth in 3Q11 saw a spill-over of demand from 2Q
due to prolonged monsoon and a late festive season, it was well
supported by strong broad-based demand in decoratives across the
country. Rural areas and small towns, in particular, continue to fare
better than larger cities. Demand for non-auto industrial paints,
however, still remains weak.
APNT continues to see high commodity cost inflation (YTD costs up
15% on FY10 average) and management expects raw material prices
to remain firm, at least in the near term.
APNT avoided taking any pricing actions during the festive season,
thereby impacting margins in 3Q11 (down 200 bp QoQ and 320 bp
YoY). However, the industry, in general, continues to enjoy strong
pricing power. APNT has taken price increases of more than 11% in
FY11 YTD (the highest annual increase in the past decade). The most
recent price hike of about 3% in Dec is expected to cover the increase
in input costs to date. We build in some margin recovery in 4Q11
(about 140 bp QoQ), and expect FY11 consolidated margins at 18%.
International markets – challenging environment
APNT continues to face a challenging demand environment in most of
its international markets. Its South Asian operations, though, have
performed well. While subsidiary financials are not strictly comparable
on a YoY basis (due to divestments last year), implied margins for the
international business have remained steady sequentially.
Changes to estimates
We adjust our FY11 estimates for the higher revenue as well as
higher commodity costs seen so far. We raise our revenue estimates
by 2%, but reduce margins by 80 bp (100 bp on standalone). Our
consolidated FY11E EPS falls 3% (standalone falls 4%). Our target
price marginally falls to Rs3,043 (from Rs3,045). At 23x FY12E EPS
and forecast earnings growth of 26% over FY11-13E, we find the
stock attractive at current levels. We maintain an OUTPERFORM.
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