Future looks bright Asian Paints :: HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Future looks bright Asian Paints’ revenue grew a mere 5.8% YoY to Rs 36.5bn. Impacted by sluggish demand environment and an early festival season, volumes grew a paltry ~2% YoY in the domestic decorative business. In addition, EBITDA margin expansion of 41bps YoY (16%) was well below expectation. APAT grew by 11.8% to Rs 3.7bn. Despite the near term pressure, we remain confident of 14% volume growth in FY16E (especially since urban housing construction and home improvement are set to revive). In addition, revival in industrial growth will aid industrial paints. Also, competitive pressures are not exactly daunting. Softening global crude prices (~55% YoY) and TiO2 (~13% YoY) can provide a significant margin boost. We like Asian Paints’ market leadership and superior pricing power. Retain BUY with a TP of Rs 945. Volume stumbles  Sluggish demand environment led to muted consolidated sales growth of 5.8% YoY to ~Rs 36.5bn. APAT at ~Rs 3.7bn rose 11.8% YoY (below est).  Standalone sales reported a mere 6.4% YoY growth due to ~2% volume growth in domestic decorative paint business. The subsidiary business grew 3% YoY impacted by moderation in auto OEM and home improvement business. EBITDA margin expands but much lower than est.  EBITDA margin expanded by 41bps YoY to 16% led by lower COGS (-286bps). This was partially offset by higher other expenses (+181bps) and staff cost (+64bps).  Gross margin benefit was invested in higher A&P in 3Q. In addition, lower operating leverage led to higher other expenses.  Softening of global crude prices and TiO2 will benefit Asian Paints the most. Crude and TiO2 contribute ~50% to COGS (highest amongst FMCG companies). Valuation and view  Asian Paints is trading at 42.6/32.9x our FY16/FY17E EPS. Retain BUY with a TP of Rs 945 (36x FY17E).

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011051