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UBS Investment Research
Asian Paints Ltd.
Q3 FY11 review
�� Results in line; disappoint consensus
Asian Paints’ (APL) consolidated revenues grew 30% to Rs21bn (UBS-e
Rs20.1bn), driven by volume growth of ~24% (due to a low base). 9M revenue
growth is +19.5%. EBITDA margins declined from 19.6% in Q3 FY10 to 16.4%
due to higher RM costs at 59.7% of sales (down 340bps YoY), all other costs were
in line. Net profit grew 11% YoY to Rs2.2bn (UBS-e Rs2.2bn).
�� Raw material pressure evident
APL has taken an ~11% price increase in FY11, but RM cost pressures continue to
add pressure on margins. APL does a monthly review of its product prices to
ensure that margins do not come under pressure; we believe there could be price
increases in Q4 given the strong underlying commodity.
�� Expanding the scope of the PPG JV; secular story
APL plans to enhance its relationship with PPG Industries Inc to add depth to their
presence in the non-decorative coatings business under the 50:50 JV that they have
at present. Increasing disposable income, new construction, and automobile
demand are secular drivers for the APL story—we continue to like the investment
thesis and maintain our Buy rating on the stock.
�� Valuation: maintain Buy rating
We maintain our Buy rating and price target of Rs3,500. We derive our price target
from a DCF-based methodology and explicitly forecast long-term valuation drivers
using UBS’s VCAM tool. We assume a WACC of 9.8% and interim growth of
13.5%.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asian Paints Ltd.
Q3 FY11 review
�� Results in line; disappoint consensus
Asian Paints’ (APL) consolidated revenues grew 30% to Rs21bn (UBS-e
Rs20.1bn), driven by volume growth of ~24% (due to a low base). 9M revenue
growth is +19.5%. EBITDA margins declined from 19.6% in Q3 FY10 to 16.4%
due to higher RM costs at 59.7% of sales (down 340bps YoY), all other costs were
in line. Net profit grew 11% YoY to Rs2.2bn (UBS-e Rs2.2bn).
�� Raw material pressure evident
APL has taken an ~11% price increase in FY11, but RM cost pressures continue to
add pressure on margins. APL does a monthly review of its product prices to
ensure that margins do not come under pressure; we believe there could be price
increases in Q4 given the strong underlying commodity.
�� Expanding the scope of the PPG JV; secular story
APL plans to enhance its relationship with PPG Industries Inc to add depth to their
presence in the non-decorative coatings business under the 50:50 JV that they have
at present. Increasing disposable income, new construction, and automobile
demand are secular drivers for the APL story—we continue to like the investment
thesis and maintain our Buy rating on the stock.
�� Valuation: maintain Buy rating
We maintain our Buy rating and price target of Rs3,500. We derive our price target
from a DCF-based methodology and explicitly forecast long-term valuation drivers
using UBS’s VCAM tool. We assume a WACC of 9.8% and interim growth of
13.5%.
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