Asian Paints, --Weak quarter – downgrade from HOLD to SELL :::Religare research,

Weak quarter – downgrade from HOLD to SELL
APNT clocked below-estimated net sales/EBITDA/adj. PAT growth of 12.5%/12.7%9.4% for Q1FY13, impacted by weak sales in the Decorative and Industrial businesses with decorative business volumes likely to have fallen by ~3%. We pare our FY13/FY14 earnings by ~5% and downgrade APNT to SELL from HOLD with a Mar’13 TP of Rs 3,250 given (a) weak volume growth in the domestic business, (b) commodity inflation with impact from Re depreciation and, (c) expensive valuations (31x/26x FY13/FY14 PE).

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 Net sales below estimates: Consolidated topline growth came in at 12.5% YoY (vs. consensus estimates of 20%) impacted by weak all-round performance (across domestic Decorative, Industrial and International businesses). Standalone sales (domestic decorative) grew only by 6.7%, implying a ~3% YoY volume growth decline and coming in as a negative surprise. International business clocked a 10% YoY growth for the quarter. APNT took a price hike of 3.2% on May 1, subsequent to the 2.12% price hike taken on March 29.
 EBITDA margins in line with estimates: Consolidated EBITDA grew 12.7% YoY to Rs 4.38bn with margins coming in flat YoY. Standalone EBITDA margins expanded 100bps YoY (gross margins up 300bps). The RM cost index for the quarter was at 106.67 over a FY12 base of 100. TiO2 prices have seen some softening during the quarter; however Re depreciation impacted margins to some extent (Rs 125mn on account of Re depreciation booked under other expenses). Adj. PAT grew 9.4% YoY to Rs 2.9bn.
 Downgrade to SELL: We cut our FY13/FY14 earnings by ~5% each, leading us to a revised Mar’13 TP of Rs 3,250 (from Rs 3,500 earlier). Key upside risks: (a) a pick-up in domestic volume growth for the Decorative business, (b) improvement in the International business and (c) softening of key input costs and Re appreciation.