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Asian Paints
Underlying growth drivers intact
AP continues to deliver strong volume growth (17% in Q4FY11), largely
unaffected by the 12% price rise taken in FY11. While Q4FY11 EBITDA margins
were down 180bps due to delayed response to input cost inflation. The planned
6% price hike in Q1FY12 will neutralise cost inflation in FY12.
Strong sales growth of 24% was better than our expectations
! AP's standalone India business reported a sales growth of 24% driven by 17% volume
growth. The growth in the international business was impacted due to unrest in Egypt and
Middle East. The company indicated that the domestic paints demand was better in 2HFY11
as the 1HFY11 was impacted by prolonged monsoon. The management indicated that it is
witnessing higher growth from rural and small towns in India, and the Eastern region in
particular in registering stronger growth. Clearly, we believe AP's is uniquely positioned to
gain from the growing penetration for branded paints in India.
EBITDA growth at 11% was slightly below expectations
! AP saw a 180bps fall in margins on a y.o.y basis. The management indicated that input cost
inflation was broad based in FY11. The company's material price index increased by 21.8% in
Q4FY11, and around 13.9% in FY11 using FY10 as the base year. The company countered
this inflation by gradual price hikes through the year of around 12%.
! The Q4FY11 margin slip was largely due to delayed pricing action by the company in tacking
volatile commodity prices. It has already put across a 4.3% price hike in May 2011, and is
planning a further price hike of 2.5% in June 2011. The management indicated that post these
hikes, it would have largely neutralised the input cost inflation.
Business outlook remain's intact
! AP's is witnessing penetration lead volume growth from small towns and rural markets, and
hence clearly, the steep price hikes effected in FY11 of 12% did not dent its volume growth. It
recorded one of its highest volume growth in its history in FY11 at 17%. We believe this is a
structural driver, with the growing affluence in small towns and rural India, and reckon that
AP's is best placed to capture this growth. The company continues to differentiate by growing
its network of Colour World outlets - in FY11 it added 3000 such outlets. We remain positive
on the stock, and would be reviewing our EPS estimates for FY12 and beyond shortly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Paints
Underlying growth drivers intact
AP continues to deliver strong volume growth (17% in Q4FY11), largely
unaffected by the 12% price rise taken in FY11. While Q4FY11 EBITDA margins
were down 180bps due to delayed response to input cost inflation. The planned
6% price hike in Q1FY12 will neutralise cost inflation in FY12.
Strong sales growth of 24% was better than our expectations
! AP's standalone India business reported a sales growth of 24% driven by 17% volume
growth. The growth in the international business was impacted due to unrest in Egypt and
Middle East. The company indicated that the domestic paints demand was better in 2HFY11
as the 1HFY11 was impacted by prolonged monsoon. The management indicated that it is
witnessing higher growth from rural and small towns in India, and the Eastern region in
particular in registering stronger growth. Clearly, we believe AP's is uniquely positioned to
gain from the growing penetration for branded paints in India.
EBITDA growth at 11% was slightly below expectations
! AP saw a 180bps fall in margins on a y.o.y basis. The management indicated that input cost
inflation was broad based in FY11. The company's material price index increased by 21.8% in
Q4FY11, and around 13.9% in FY11 using FY10 as the base year. The company countered
this inflation by gradual price hikes through the year of around 12%.
! The Q4FY11 margin slip was largely due to delayed pricing action by the company in tacking
volatile commodity prices. It has already put across a 4.3% price hike in May 2011, and is
planning a further price hike of 2.5% in June 2011. The management indicated that post these
hikes, it would have largely neutralised the input cost inflation.
Business outlook remain's intact
! AP's is witnessing penetration lead volume growth from small towns and rural markets, and
hence clearly, the steep price hikes effected in FY11 of 12% did not dent its volume growth. It
recorded one of its highest volume growth in its history in FY11 at 17%. We believe this is a
structural driver, with the growing affluence in small towns and rural India, and reckon that
AP's is best placed to capture this growth. The company continues to differentiate by growing
its network of Colour World outlets - in FY11 it added 3000 such outlets. We remain positive
on the stock, and would be reviewing our EPS estimates for FY12 and beyond shortly.
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