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Cut our lower-than-consensus estimates further; reiterate REDUCE. The 3QFY15 miss drives 4-6% cut in our already-lower-than-consensus EPS estimates. While aggressive in absolute terms, our forecasts are lower than the Street on both volume growth as well as crude-fall-led margin increase assumptions. The stock is expensive even on the more bullish consensus estimates – a combination of peak multiples on aggressive forecasts. We remain Cautious; reiterate REDUCE rating. TP stays unchanged at `750
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Stock expensive on our ‘reasonably’ bullish forecasts Exhibit 1 gives the key changes to our earnings model for APNT. We have cut our FY2015-17E revenue forecasts by 2-4%, EBITDA forecasts by 3-5%, and EPS forecasts by 4-6%. We note that we continue to be reasonably bullish in our assumptions – We assume domestic decorative volume growth to accelerate to 13-14% in FY2016/17E from the 6-12% levels seen in FY2012-15E. We appreciate the argument on the possibility of a sharper acceleration in volume if the economy rebounds sharply. However, we note that paints was one segment that did not see material volume growth slowdown as most of the other consumption categories saw. There is no material base effect tailwind, in other words. We assume marginal pricing decline of 2% in FY2016E for domestic decorative business followed by a normalized 3% pricing growth in FY2017E. Competitive forces and/or sustained weakness in consumer sentiments can force a higher price correction. We assume gross margin expansion of nearly 400 bps and EBITDA margin expansion of 310 bps yoy for FY2016E and broadly assume the expanded levels to sustain in FY2017E. We note that these assumptions drive a sharp 1,100 bps expansion in RoIC from 39% in FY2015E to 50% in FY2016E. Meaningful cost benefits common to all industry players are at least partly passed on to the consumers in competitive industries. FY2016E will show how competitive or oligopolic the paints industry in India behaves in the current crude correction cycle. However, EBITDA margin forecasts assuming oligopolic behavior is risky; we refrain from such mathematics, hence. Rich multiples at 36X our FY2017E EPS forecast add further downside risk to the stock, in our view. Narratives (recovery expectations and crude fall-led margin expansion) are strong, we agree. However, how far can narratives be stretched? Are peak multiples on peak EBITDA margin forecasts fair? We remain uncomfortable with the extent to which the positives are being stretched – in EPS forecasts and multiples both. Expensive, especially on aggressive forecasts, is a good reason to not own quality. We reiterate our REDUCE recommendation with an unchanged target price of `750.Stock expensive on our ‘reasonably’ bullish forecasts Exhibit 1 gives the key changes to our earnings model for APNT. We have cut our FY2015-17E revenue forecasts by 2-4%, EBITDA forecasts by 3-5%, and EPS forecasts by 4-6%. We note that we continue to be reasonably bullish in our assumptions – We assume domestic decorative volume growth to accelerate to 13-14% in FY2016/17E from the 6-12% levels seen in FY2012-15E. We appreciate the argument on the possibility of a sharper acceleration in volume if the economy rebounds sharply. However, we note that paints was one segment that did not see material volume growth slowdown as most of the other consumption categories saw. There is no material base effect tailwind, in other words. We assume marginal pricing decline of 2% in FY2016E for domestic decorative business followed by a normalized 3% pricing growth in FY2017E. Competitive forces and/or sustained weakness in consumer sentiments can force a higher price correction. We assume gross margin expansion of nearly 400 bps and EBITDA margin expansion of 310 bps yoy for FY2016E and broadly assume the expanded levels to sustain in FY2017E. We note that these assumptions drive a sharp 1,100 bps expansion in RoIC from 39% in FY2015E to 50% in FY2016E. Meaningful cost benefits common to all industry players are at least partly passed on to the consumers in competitive industries. FY2016E will show how competitive or oligopolic the paints industry in India behaves in the current crude correction cycle. However, EBITDA margin forecasts assuming oligopolic behavior is risky; we refrain from such mathematics, hence. Rich multiples at 36X our FY2017E EPS forecast add further downside risk to the stock, in our view. Narratives (recovery expectations and crude fall-led margin expansion) are strong, we agree. However, how far can narratives be stretched? Are peak multiples on peak EBITDA margin forecasts fair? We remain uncomfortable with the extent to which the positives are being stretched – in EPS forecasts and multiples both. Expensive, especially on aggressive forecasts, is a good reason to not own quality. We reiterate our REDUCE recommendation with an unchanged target price of `750.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
Cut our lower-than-consensus estimates further; reiterate REDUCE. The 3QFY15 miss drives 4-6% cut in our already-lower-than-consensus EPS estimates. While aggressive in absolute terms, our forecasts are lower than the Street on both volume growth as well as crude-fall-led margin increase assumptions. The stock is expensive even on the more bullish consensus estimates – a combination of peak multiples on aggressive forecasts. We remain Cautious; reiterate REDUCE rating. TP stays unchanged at `750
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Stock expensive on our ‘reasonably’ bullish forecasts Exhibit 1 gives the key changes to our earnings model for APNT. We have cut our FY2015-17E revenue forecasts by 2-4%, EBITDA forecasts by 3-5%, and EPS forecasts by 4-6%. We note that we continue to be reasonably bullish in our assumptions – We assume domestic decorative volume growth to accelerate to 13-14% in FY2016/17E from the 6-12% levels seen in FY2012-15E. We appreciate the argument on the possibility of a sharper acceleration in volume if the economy rebounds sharply. However, we note that paints was one segment that did not see material volume growth slowdown as most of the other consumption categories saw. There is no material base effect tailwind, in other words. We assume marginal pricing decline of 2% in FY2016E for domestic decorative business followed by a normalized 3% pricing growth in FY2017E. Competitive forces and/or sustained weakness in consumer sentiments can force a higher price correction. We assume gross margin expansion of nearly 400 bps and EBITDA margin expansion of 310 bps yoy for FY2016E and broadly assume the expanded levels to sustain in FY2017E. We note that these assumptions drive a sharp 1,100 bps expansion in RoIC from 39% in FY2015E to 50% in FY2016E. Meaningful cost benefits common to all industry players are at least partly passed on to the consumers in competitive industries. FY2016E will show how competitive or oligopolic the paints industry in India behaves in the current crude correction cycle. However, EBITDA margin forecasts assuming oligopolic behavior is risky; we refrain from such mathematics, hence. Rich multiples at 36X our FY2017E EPS forecast add further downside risk to the stock, in our view. Narratives (recovery expectations and crude fall-led margin expansion) are strong, we agree. However, how far can narratives be stretched? Are peak multiples on peak EBITDA margin forecasts fair? We remain uncomfortable with the extent to which the positives are being stretched – in EPS forecasts and multiples both. Expensive, especially on aggressive forecasts, is a good reason to not own quality. We reiterate our REDUCE recommendation with an unchanged target price of `750.Stock expensive on our ‘reasonably’ bullish forecasts Exhibit 1 gives the key changes to our earnings model for APNT. We have cut our FY2015-17E revenue forecasts by 2-4%, EBITDA forecasts by 3-5%, and EPS forecasts by 4-6%. We note that we continue to be reasonably bullish in our assumptions – We assume domestic decorative volume growth to accelerate to 13-14% in FY2016/17E from the 6-12% levels seen in FY2012-15E. We appreciate the argument on the possibility of a sharper acceleration in volume if the economy rebounds sharply. However, we note that paints was one segment that did not see material volume growth slowdown as most of the other consumption categories saw. There is no material base effect tailwind, in other words. We assume marginal pricing decline of 2% in FY2016E for domestic decorative business followed by a normalized 3% pricing growth in FY2017E. Competitive forces and/or sustained weakness in consumer sentiments can force a higher price correction. We assume gross margin expansion of nearly 400 bps and EBITDA margin expansion of 310 bps yoy for FY2016E and broadly assume the expanded levels to sustain in FY2017E. We note that these assumptions drive a sharp 1,100 bps expansion in RoIC from 39% in FY2015E to 50% in FY2016E. Meaningful cost benefits common to all industry players are at least partly passed on to the consumers in competitive industries. FY2016E will show how competitive or oligopolic the paints industry in India behaves in the current crude correction cycle. However, EBITDA margin forecasts assuming oligopolic behavior is risky; we refrain from such mathematics, hence. Rich multiples at 36X our FY2017E EPS forecast add further downside risk to the stock, in our view. Narratives (recovery expectations and crude fall-led margin expansion) are strong, we agree. However, how far can narratives be stretched? Are peak multiples on peak EBITDA margin forecasts fair? We remain uncomfortable with the extent to which the positives are being stretched – in EPS forecasts and multiples both. Expensive, especially on aggressive forecasts, is a good reason to not own quality. We reiterate our REDUCE recommendation with an unchanged target price of `750.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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