What surprised us
Asian Paints (ASPN) reported 1QFY14 PAT of Rs2.9bn (-5% yoy, -19% vs
GSe). While sales were broadly in line, the PAT miss was due to higher
SG&A. Key takeaways: 1) Volumes: Based on RM (raw materials) costs
inflation, we calculate volume growth of 11-12%, against a lower base in
1QFY13. Management expects double-digit yoy volume growth for FY14
on account of a good monsoon; 2) ASPN took a 1.15% price increase on
May 1, and will take a further 1% price increase on August 1; 3) Gross
margin for the quarter rose by 164bps yoy as RM costs remained benign.
However, EBIT margin fell 106bps yoy due to higher SG&A. Depreciation
rose due to installation of the Khandala plant. One-offs in employee costs
(Rs100mn for re-evaluation of pension liability at a lower discounting rate)
and other expenses (Rs140mn for FX impact) had a total negative impact
of Rs240mn on PBT; 4) Tax rate for the quarter was higher yoy at 32.8%
due to a surcharge imposition. ASPN expects a similar tax rate for FY14; 5)
ASPN expects 30-35% utilization of the Khandala plant for FY14.
What to do with the stock
We lower our FY14-16E EPS by 3-6% to reflect higher SG&A and tax rate.
Hence, we cut our 12m P/E-based (26X, unchanged) TP to Rs4,130 from
(Rs4,258). We forecast FY13-16E EPS CAGR of 16% vs 5-yr historical CAGR
of 22% (10-yr: 23%). On our estimates, ASPN is trading at 12m fwd P/E of
34.6X , vs 3-yr historical average of 29.3X (10-yr 21.7X), but in line with the
sector average FY14E P/E of 36X. Maintain Neutral. Key risks: Upside:
Faster-than-expected volume growth; sharp correction in input cost prices;
Downside: competitive pressure; slower growth in international business.
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Asian Paints (ASPN) reported 1QFY14 PAT of Rs2.9bn (-5% yoy, -19% vs
GSe). While sales were broadly in line, the PAT miss was due to higher
SG&A. Key takeaways: 1) Volumes: Based on RM (raw materials) costs
inflation, we calculate volume growth of 11-12%, against a lower base in
1QFY13. Management expects double-digit yoy volume growth for FY14
on account of a good monsoon; 2) ASPN took a 1.15% price increase on
May 1, and will take a further 1% price increase on August 1; 3) Gross
margin for the quarter rose by 164bps yoy as RM costs remained benign.
However, EBIT margin fell 106bps yoy due to higher SG&A. Depreciation
rose due to installation of the Khandala plant. One-offs in employee costs
(Rs100mn for re-evaluation of pension liability at a lower discounting rate)
and other expenses (Rs140mn for FX impact) had a total negative impact
of Rs240mn on PBT; 4) Tax rate for the quarter was higher yoy at 32.8%
due to a surcharge imposition. ASPN expects a similar tax rate for FY14; 5)
ASPN expects 30-35% utilization of the Khandala plant for FY14.
What to do with the stock
We lower our FY14-16E EPS by 3-6% to reflect higher SG&A and tax rate.
Hence, we cut our 12m P/E-based (26X, unchanged) TP to Rs4,130 from
(Rs4,258). We forecast FY13-16E EPS CAGR of 16% vs 5-yr historical CAGR
of 22% (10-yr: 23%). On our estimates, ASPN is trading at 12m fwd P/E of
34.6X , vs 3-yr historical average of 29.3X (10-yr 21.7X), but in line with the
sector average FY14E P/E of 36X. Maintain Neutral. Key risks: Upside:
Faster-than-expected volume growth; sharp correction in input cost prices;
Downside: competitive pressure; slower growth in international business.
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