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Asian Paints indicated that cost increases in Q3FY11 was more than anticipated, and for strategic
business reasons, they did not take up prices in the festival season. The 3% price hike from
December was only partially reflected. On demand, they remained optimistic, while being
cautious on margins.
Q4FY11, margins could see a uptick.
Asian Paints management in the conference call indicated that margins of FY10 was
unusually high, and might not be sustainable. As regards the sharp 320bps yoy fall in
margins, they did suggest that it would see a pull back in the Q4FY11. This was due to
delayed pricing action taken by the company for strategic business reasons. The festival
season which fell entirely in FY11 in Q3, was in October and November, and the company did
not want to impact its 35,000 strong dealer network with a price change during the festival
season. Hence, it deferred the price hike to December 1, when it took a 3% price hike.
Clearly, while the impact of the higher raw material costs (of around 4%) was felt through the
quarter, the positive impact of the higher prices was felt only for 1 month.
Management remained positive on demand
The demand conditions across geographies in India and segments remained strong. The
revenue growth for FY11 so far has been 23%, while the price hikes have been 11%,
indicating a double-digit volume growth. Management maintained that when inflation in paint
prices are lower than the general inflation levels in the system, they do not materially see a
major impact on demand. The company has maintained its market shares, and indicated that
quantity of area which is being painted in India is increasing, and that is driving volume
growth.
We will review our estimates
We have assumed an EBITDA margin of 18.8% for FY11, on a revenue growth expectation of
18.8%. The company has outperformed our expectations of revenue growth with growth at
23% in FY11 so far, while achieving a EBITDA margin of 18.9%. As regards our FY12
estimates, we are expecting a revenue growth of 17.7%, with a EBITDA margin forecast of
19.2%.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Paints indicated that cost increases in Q3FY11 was more than anticipated, and for strategic
business reasons, they did not take up prices in the festival season. The 3% price hike from
December was only partially reflected. On demand, they remained optimistic, while being
cautious on margins.
Q4FY11, margins could see a uptick.
Asian Paints management in the conference call indicated that margins of FY10 was
unusually high, and might not be sustainable. As regards the sharp 320bps yoy fall in
margins, they did suggest that it would see a pull back in the Q4FY11. This was due to
delayed pricing action taken by the company for strategic business reasons. The festival
season which fell entirely in FY11 in Q3, was in October and November, and the company did
not want to impact its 35,000 strong dealer network with a price change during the festival
season. Hence, it deferred the price hike to December 1, when it took a 3% price hike.
Clearly, while the impact of the higher raw material costs (of around 4%) was felt through the
quarter, the positive impact of the higher prices was felt only for 1 month.
Management remained positive on demand
The demand conditions across geographies in India and segments remained strong. The
revenue growth for FY11 so far has been 23%, while the price hikes have been 11%,
indicating a double-digit volume growth. Management maintained that when inflation in paint
prices are lower than the general inflation levels in the system, they do not materially see a
major impact on demand. The company has maintained its market shares, and indicated that
quantity of area which is being painted in India is increasing, and that is driving volume
growth.
We will review our estimates
We have assumed an EBITDA margin of 18.8% for FY11, on a revenue growth expectation of
18.8%. The company has outperformed our expectations of revenue growth with growth at
23% in FY11 so far, while achieving a EBITDA margin of 18.9%. As regards our FY12
estimates, we are expecting a revenue growth of 17.7%, with a EBITDA margin forecast of
19.2%.
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