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Asian Paints
RECO : HOLD TP : Rs2,510
Investment Rationale
§ Though, Q3FY11 APAT at Rs2.2 bn meets expectation – Ebidta margins decline at 320 bps yoy was higher then
expectation. It clearly signals Ebidta margin pressure on account of rising input costs (Titanium Dioxide & Crude
Oil Derivatives) and inadequate pricing actions. Since, EMKAY estimates factors contraction in gross margins,
earnings remains unchanged at Rs91.5/Share and Rs106.1/Share respectively
§ Annual volume growth expectation at 2X GDP or 15-17% for FY11E and FY12E – despite erratic movement on
quarterly basis. Expect robust volume growth in domestic business (better then long-term correlation of 1.8X
GDP) and muted growth in international business (especially Caribbean & East Asia region)
§ YTD price increase is 11.4%, whereas the corresponding input cost increase on weighted average basis is 15%.
Input cost pressure is most likely to persist -high probability of impacting gross margins in ensuing quarters
§ Since, last 8 quarters Asian Paints has recorded positive surprise – reported high volume growth and Ebidta
margins- strongest in its history. Thus, Asian Paints is already facing high base – virtually not seen any earnings
upgrades since last 2 quarters for the same reason
Valuations
§ Asian Paints trades at rich valuations of 24X FY12E earnings. The upside is capped unless rolled to FY13E
earnings. Considering, risk to earnings estimates from high input cost and unfavorable base, we maintain HOLD
rating with target price of Rs2510/Share (Rating Unchanged)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Paints
RECO : HOLD TP : Rs2,510
Investment Rationale
§ Though, Q3FY11 APAT at Rs2.2 bn meets expectation – Ebidta margins decline at 320 bps yoy was higher then
expectation. It clearly signals Ebidta margin pressure on account of rising input costs (Titanium Dioxide & Crude
Oil Derivatives) and inadequate pricing actions. Since, EMKAY estimates factors contraction in gross margins,
earnings remains unchanged at Rs91.5/Share and Rs106.1/Share respectively
§ Annual volume growth expectation at 2X GDP or 15-17% for FY11E and FY12E – despite erratic movement on
quarterly basis. Expect robust volume growth in domestic business (better then long-term correlation of 1.8X
GDP) and muted growth in international business (especially Caribbean & East Asia region)
§ YTD price increase is 11.4%, whereas the corresponding input cost increase on weighted average basis is 15%.
Input cost pressure is most likely to persist -high probability of impacting gross margins in ensuing quarters
§ Since, last 8 quarters Asian Paints has recorded positive surprise – reported high volume growth and Ebidta
margins- strongest in its history. Thus, Asian Paints is already facing high base – virtually not seen any earnings
upgrades since last 2 quarters for the same reason
Valuations
§ Asian Paints trades at rich valuations of 24X FY12E earnings. The upside is capped unless rolled to FY13E
earnings. Considering, risk to earnings estimates from high input cost and unfavorable base, we maintain HOLD
rating with target price of Rs2510/Share (Rating Unchanged)
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