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Decisive quarter for volumes
Volumes likely to hold steady at ~11-12%
Post a weak Q2, due to shifting of volumes on account of extended
monsoons, we expect volume off-take to hold steady at ~11-12% YoY,
partially hit by high base (last year too sales had shifted to Q3). Despite
overall macro-slowdown, volumes have held up for paint companies,
though we expect moderation in FY13E and await cues from current
quarter. Value growth will continue to remain strong at ~10% YoY
driven by sustained price hikes (~10-11% price hikes in FY12YTD, most
recent hike of ~2% taken in Dec, 2011). We expect Asian Paints to post
a revenue growth of ~23% YoY in the domestic business while Kansai
will post the weakest growth of ~18% YoY due to weak growth in
auto particularly passenger vehicles.
Expect sequential dip in gross margins due to currency movement
Due to adverse currency movement (~10% rupee depreciation), we
expect gross margins to contract ~50bps QoQ (~30% of inputs are
imported). However, we highlight, raw material prices, particularly
crude oil (~30-40% of inputs are crude derivatives) and Tio2 (~20% of
total input costs) have started stabilising. Our Paint RM Index indicates
a QoQ inflation of ~2% (excluding rupee impact) down from ~7-8%
QoQ inflation in Q1FY12/Q2FY12. Further, ~10-11% price hikes YTD in
FY2012 coupled with favourable base in H2FY12E should curtail gross
margin contraction to ~50-100bps in H2FY12E.
Maintain Reduce on Asian Paints and re-iterate Berger as top pick
We wait Q3 quarter for cues/commentary on volume growth and
impact of currency movement and inventory management on gross
margins before taking cuts in our estimates. We maintain Reduce on
Asian Paints due to rich valuation and lack of any near term catalysts,
while we re-iterate Berger Paints as our top pick owing to its superior
margin management, market share gains driving steady volume
growth, potential incremental gains in margins likely to play out with
product mix enrichment (higher contribution from premium
emulsions) and attractive valuations
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Decisive quarter for volumes
Volumes likely to hold steady at ~11-12%
Post a weak Q2, due to shifting of volumes on account of extended
monsoons, we expect volume off-take to hold steady at ~11-12% YoY,
partially hit by high base (last year too sales had shifted to Q3). Despite
overall macro-slowdown, volumes have held up for paint companies,
though we expect moderation in FY13E and await cues from current
quarter. Value growth will continue to remain strong at ~10% YoY
driven by sustained price hikes (~10-11% price hikes in FY12YTD, most
recent hike of ~2% taken in Dec, 2011). We expect Asian Paints to post
a revenue growth of ~23% YoY in the domestic business while Kansai
will post the weakest growth of ~18% YoY due to weak growth in
auto particularly passenger vehicles.
Expect sequential dip in gross margins due to currency movement
Due to adverse currency movement (~10% rupee depreciation), we
expect gross margins to contract ~50bps QoQ (~30% of inputs are
imported). However, we highlight, raw material prices, particularly
crude oil (~30-40% of inputs are crude derivatives) and Tio2 (~20% of
total input costs) have started stabilising. Our Paint RM Index indicates
a QoQ inflation of ~2% (excluding rupee impact) down from ~7-8%
QoQ inflation in Q1FY12/Q2FY12. Further, ~10-11% price hikes YTD in
FY2012 coupled with favourable base in H2FY12E should curtail gross
margin contraction to ~50-100bps in H2FY12E.
Maintain Reduce on Asian Paints and re-iterate Berger as top pick
We wait Q3 quarter for cues/commentary on volume growth and
impact of currency movement and inventory management on gross
margins before taking cuts in our estimates. We maintain Reduce on
Asian Paints due to rich valuation and lack of any near term catalysts,
while we re-iterate Berger Paints as our top pick owing to its superior
margin management, market share gains driving steady volume
growth, potential incremental gains in margins likely to play out with
product mix enrichment (higher contribution from premium
emulsions) and attractive valuations
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