Asian Paints - Volume, Margins Set to Improve; Result Update Q3FY15 ::Edelweiss

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Asian Paints’ (APL) Q3FY15 revenues and PAT came in marginally below our expectations (significantly below Street’s) due to miss on volumes. Sluggish demand and early festive season (versus Q3FY14) led to moderation in volume growth at ~2-3% YoY. In the past too, the company’s volume growth has been volatile; in Q1FY13 volume was flattish YoY, but sharply revived to 9% YoY in Q2FY13. Therefore, in our view, moderation in volume growth is temporary and ensuing quarters are likely to see revival. Gross margin improved 286bps YoY, led by partial benefits of crude price correction; we expect higher benefits to flow Q4FY15 onwards. With soft raw material prices (boding well for margin improvement) and APL being one of the best plays on urban recovery.

Industrial and international businesses do well

Industrial business witnessed good growth in auto refinish segment; OEM segment continued to be impacted. International performance was led by double digit growth in Bangladesh, Nepal & Emirates; Egypt declined YoY. Ess Ess business clocked INR531mn YTD15 with EBIT loss of INR66mn; the muted performance was due to dependence on new housing development which has been moderate in the past few years.   

Key takeaways from Q3FY15 concall

Domestic demand was subdued across regions except East. Other expenses were higher on account of higher actuarial provision due to falling yields, lower operating leverage and higher A&P spends. Capex for FY15 is INR5bn which is mainly for expansion of Rohtak capacity from 200kT to 400kT (on schedule). APL’s total capacity is 1mn tonne and is operating at 75-80% utilisation. As capacity utilization hits 80% APL goes for expansion. Hence it is looking at setting up a new fully automated plant in South India. Unorganised players (35% value share) are growing at par with organised players with focus on the lower end segment.

LINK
https://www.edelweiss.in/research/Asian-Paints--Volume,-Margins-Set-to-Improve;-Result-Update-Q3FY15/28176.html