Asian Paints: 3QFY15 review - volume growth slowdown surprises ::Kotak Sec, report

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Paints: 3QFY15 review – volume growth slowdown surprises. Weak volume growth for all the major paint names was a negative surprise against the backdrop of reasonably bullish managements and no major change in macro drivers. The volume slowdown could very well be a quarter-specific phenomenon. However, it does underscore an important point – assumed macro-improvement-led volume acceleration is not a given and therein lies the risk to estimates and (rich) multiples.

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Asian Paints: Cut our lower-than-consensus estimates further; reiterate REDUCE :: Kotak Securities

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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

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

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Subdued volume growth… • Asian Paints :: ICICI Securities

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Future looks bright Asian Paints :: HDFC Securities

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Volume growth remains intact… • Asian Paints:: ICICI Securities PDF link

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BUY Asian Paints: Target Rs 700:: Kotak securities

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Asian Paints (APNT IN) FY14 challenges remain:: Jefferies

Key Takeaway
APNT 1Q14 was below expectations as EBITDA remained flat despite 15%
growth in gross profits. While volume growth was reasonably strong, the
mixed pattern in input cost inflation (stable raw materials, higher operating
expenses) continues to weigh on margins. Maintain Underperform.
1Q14 results below expectations: Asian Paints’ 1Q14 revenues (+12% YoY) and gross
profits (+15% YoY) grew in line with expectations. However, this failed to offset the inflation
in other operating costs, up 22% YoY adjusting for higher gratuity provision. As a result, adj.
EBITDA came in 4.5% below forecast.
Domestic volume growth strong in 1Q14: Domestic decorative paint volumes grew
in double-digits. Despite the favorable base (volumes in 1Q13 were likely flat), we believe
the growth was reasonably strong considering an otherwise weak economic environment
as well as the negative impact of early monsoons. Sustaining this level of growth for the rest
of FY14, though, could be a challenge if weak demand conditions persist. Nonetheless, we
marginally raise our domestic volume assumptions (c1%) for FY14.
Margins - the mixed pattern continues: The mixed pattern in underlying input cost
inflation continued to weigh on overall margins for the company. While international
commodity prices have turned benign (stable in INR terms), other operating costs have
increased on account of the newly commissioned plant as well as higher freight and power
costs. Therefore, while gross margins expanded 150bps YoY, EBITDA margins declined
110bps YoY. We believe this could continue to be a drag on earnings growth in coming
quarters and marginally lower our FY14E EBITDA forecast (c1%). We also incorporate higherthan-expected depreciation and tax rates, leading to c2-5% cut in earnings estimates.
Valuation/Risks
Our DCF-based PT now stands at Rs4142 up from Rs4107 (11.3% COE, 6% terminal growth
rate), as we factor in these changes and roll over our estimates. The stock trades at 39x
FY14E EPS, at a significant premium relative to peers and its own history. Upside from her is
contingent upon earnings delivery assuming steady multiples, which we believe is at risk.
Maintain Underperform. Risks: a) faster revival in demand, b) higher-than-forecast gross
margin gains

Asian Paints 1QFY14: Results Disappoint; Unfavourable Risk Reward Balance :: Citi Research

Asian Paints (ASPN.BO)
 1QFY14: Results Disappoint; Unfavourable Risk Reward Balance
 PAT declines 5% YoY despite a weak base — Consol revenues at Rs28.2bn rose
11% YoY - below expectations (Citi / consensus: Rs28.8/ Rs28.3bn). Decorative paints
volume growth is est. ~10% YoY on a low base (no growth in 1QFY13). Despite input
cost tailwinds, EBITDA was flat & PAT down 5% to Rs4.4bn & Rs2.8bn - missing our /
street ests by >10%. While some cost pressures (operating / capital costs on Khandala
plant + higher fuel & freight costs) were known - but the revenues miss, lower than
expected GM expansion & certain negative surprises (discount rate change for
gratuity/leave liabilities + FX loss) led to the sharp profit miss.
 Rupee plays spoilsport — ~40-45% of inputs are imported & thus weak INR is a net
negative (offsets any translation gains from international revs). Soft global commodity
prices haven’t flown through entirely; TiO2 was flat-to-marginally higher in INR terms.
 Paring ests, TP — We cut EPS ests by 3-6% (lower revenues, GMs & cost pressures)
& consequently TP to Rs4,050 (28x Sept14E EPS). Retain Sell.
 There are structural positives… — APNT is a solid business benefiting from: a) its
dominant positioning, b) pricing power, c) extensive portfolio, d) slow, but steady
premiumisation trends, and, e) high entry barriers given the extensive dealer network.
 ... but priced into current valuations (+3 std. deviations above mean) — However,
expectations on the stock are fairly high & we see downside risks to consensus nos.
Valuations at ~36x 1-yr fwd P/E are ~3 std. deviations above its historical mean,
providing limited comfort and making the risk reward balance unfavorable.
 And the business negatives / imponderables? — a) The economy is still slow & we
think it is early to call a demand recovery; base effect going forward isn’t as favourable
as 1Q. b) Mgmt admits operating margins may be capped given sharp increase in
manufacturing & distribution costs. c) Diversification into home improvement is a
strategic change – questions around capital allocation, higher capital intensity, limited
scalability, APNT’s USP, and, lower near/medium-term profitability remain.

Asian Paints - Below expectations: EBIT miss on negative operating leverage:: Goldman Sachs,

What surprised us
Asian Paints (ASPN) reported 1QFY14 PAT of Rs2.9bn (-5% yoy, -19% vs
GSe). While sales were broadly in line, the PAT miss was due to higher
SG&A. Key takeaways: 1) Volumes: Based on RM (raw materials) costs
inflation, we calculate volume growth of 11-12%, against a lower base in
1QFY13. Management expects double-digit yoy volume growth for FY14
on account of a good monsoon; 2) ASPN took a 1.15% price increase on
May 1, and will take a further 1% price increase on August 1; 3) Gross
margin for the quarter rose by 164bps yoy as RM costs remained benign.
However, EBIT margin fell 106bps yoy due to higher SG&A. Depreciation
rose due to installation of the Khandala plant. One-offs in employee costs
(Rs100mn for re-evaluation of pension liability at a lower discounting rate)
and other expenses (Rs140mn for FX impact) had a total negative impact
of Rs240mn on PBT; 4) Tax rate for the quarter was higher yoy at 32.8%
due to a surcharge imposition. ASPN expects a similar tax rate for FY14; 5)
ASPN expects 30-35% utilization of the Khandala plant for FY14.
What to do with the stock
We lower our FY14-16E EPS by 3-6% to reflect higher SG&A and tax rate.
Hence, we cut our 12m P/E-based (26X, unchanged) TP to Rs4,130 from
(Rs4,258). We forecast FY13-16E EPS CAGR of 16% vs 5-yr historical CAGR
of 22% (10-yr: 23%). On our estimates, ASPN is trading at 12m fwd P/E of
34.6X , vs 3-yr historical average of 29.3X (10-yr 21.7X), but in line with the
sector average FY14E P/E of 36X. Maintain Neutral. Key risks: Upside:
Faster-than-expected volume growth; sharp correction in input cost prices;
Downside: competitive pressure; slower growth in international business.

ASIAN PAINTS Volumes surprise; new capacity causes blips:: Edelweiss

Asian Paints’ Q1FY14 sales growth (at 11.6% YoY) came in line with
estimates though PAT was lower than estimates. Key positives were (i)
double digit volume growth in domestic decorative business (likely
gained share) despite heavy rainfall in June (which had impact on
demand in southern and western regions of India); and (ii) expansion in
gross margins in both, consolidated (148bps) and standalone (76bps)
businesses. Key negatives were (i) compression in EBITDA margin by
119bps YoY due to higher employee costs (increase in provisions for
gratuity and leave encashment), other expenses (commissioning of new
plant, diesel costs, ad spends). The company has already announced a 1%
price hike from August 1, 2013. Exchange rate movement and diesel price
hikes are key monitorables. Maintain ‘BUY’ on dips.

Asian Paints, Margin upside, but demand still uncertain : Nomura research,

Margin upside, but demand still uncertain
Margin uptick offset by INR
depreciation and subdued
demand environment; Neutral

Asian Paints In Consonance; Maintain BUY : Emkay

n Change in its brand look signifies establishment of a closer
rapport with customers, while acquisition of Sleek Group
(51%) depicts metamorphosis into a home décor company
n Product mix, improved distribution, new product launches,
international operations and high dividend payout – Key
positives
n Low volume growth, margin offsets & cautious outlook on
business – Key negatives
n Emkay forecasts for APL with UVG of 7-9% and 170 bps yoy
expansion in Ebidta margins in consonance with management
commentary. Retain BUY
‘Changing the Look, Transforming the Outlook’ says Annual Report 2013
Annual Report 2013 marks major changes and transformation in business outlook. Asian
Paints has changed its brand look by unveiling a new corporate brand entity, signifying its
intent to establish a closer rapport with its customers. With its recent foray into the home
improvement segment through acquisition of a 51% stake in Sleek Group, it is
metamorphosing itself into a home décor company, depicting transformation in business.
Product mix, improved improvement, new product launches, international
operations and higher dividend payout – Key positives
§ Richer product mix led by premium interior and exterior emulsions paints. Interior
emulsions growth was driven by Royale and its variants, while Apex Ultima in exterior
emulsions saw strong growth, led by higher ad spends and marketing activations.
§ Value growth of 12.7% in standalone operations was supported by price increases
(5.1% price hike in FY13).
§ Lower inflation in most of the raw materials led to gross margin expansion of 180bps yoy
to 42.2% in standalone operations.
§ Continues to augment distribution network; installs 2900 Colour Worlds and total
installations reaching 24,000 in India. APL increases Colour Idea stores to 100 in FY13.
§ Launched ‘Smart Care’ range of water proofing and crack building, which received
excellent response. Also, enhanced focus on wood finish by launching products in key
wood finish market in collaboration with Renner of Italy.
§ Despite the turbulence in Middle East and slowdown in Caribbean & Asia, the global
operations posted a healthy revenue growth of 23% yoy to Rs14.2bn, with a constant
currency growth of 13% yoy and APAT growth of 45% yoy to Rs 1bn.
§ Commissioned its 7th decorative plant with initial installed capacity of 300,000 KL in
Khandala. Also expanded capacities in Rohtak plant by 50,000 KL p.a. to 200,000 KL
p.a. and added 240,00 KL p.a. globally.
§ Consolidated capex spends at Rs 6.4bn in FY13. Despite this, APL generated free cash
flows of Rs 5.5bn vs Rs 1.6bn in FY12.
§ Dividend payout increases to 43% in FY13 versus average of 40% in last 3 year. Higher
dividend payout exuberates confidence on future cash generation.

Nomura research :: Asian Paints- Margin upside, but demand still uncertain

Margin uptick offset by INR
depreciation and subdued
demand environment; Neutral

Technicals -RPower, Vijaya Bank, Manappuram, Asian Paints, Shree Renuka Sugars, Tata Global Beverages :: Business Line

 

Asian Paints:: Some sequential improvement -- Nomura research,

Some sequential improvement
Volume growth pickup still
awaited; maintain Neutral on
rich valuation

ASIAN PAINTS Volumes recover; margins to follow:: Edelweiss

Asian Paints’ Q2FY13 revenue came ahead of our estimate while PAT
came bang in line. Key positives were: (1) Recovery in domestic volume
growth at ~6% YoY (vs flattish volumes in Q1FY13) and (2) Slight
improvement in domestic EBITDA margin. Key negatives include: (1)
lowest consolidated EBITDA margin in the last 14 quarters (likely to have
bottomed out) and (2) Spurt in interest cost by 37.7% YoY (on a low
base). We remain positive due to re-launch of brand identity in India
(after 10 years), innovation (entered the construction chemicals business
in “dampness correction”) and scaling up of benefits. Although the
discretionary spending remains under pressure in near term, this could
reverse if sentiments improve (due to recent reforms and a possible cut
in interest rates). Maintain ‘BUY’.

Asian Paints, --Weak quarter – downgrade from HOLD to SELL :::Religare research,

Weak quarter – downgrade from HOLD to SELL
APNT clocked below-estimated net sales/EBITDA/adj. PAT growth of 12.5%/12.7%9.4% for Q1FY13, impacted by weak sales in the Decorative and Industrial businesses with decorative business volumes likely to have fallen by ~3%. We pare our FY13/FY14 earnings by ~5% and downgrade APNT to SELL from HOLD with a Mar’13 TP of Rs 3,250 given (a) weak volume growth in the domestic business, (b) commodity inflation with impact from Re depreciation and, (c) expensive valuations (31x/26x FY13/FY14 PE).

Asian Paints, RESULT UPDATE - Q1FY13:: SPA Securities,

Asian Paints reported disappointing set of numbers for Q1FY13 on the back of meagre volume growth. Company reported
consolidated sales of INR 25,479mn, a YoY growth of 12.72% largely led by price increases. EBIDTA margin improved by
18bps YoY to 17.53%. PAT grew by 9.38% YoY to INR 2,884mn which was below our expectation. We expect volume growth
to pick in next quarter; however, improvement in monsoon and stable exchange rate would be the key catalyst for the
company's performance. We expect consolidated sales and PAT CAGR of 16.77% and 18.62% over FY12-14. At CMP, stock is
trading at 30x FY13E EPS, which in our view is high on the backdrop of falling demand and continued pressure on margins.
We downgrade to SELL.

Outlook on Asian Paints results by Motilal Oswal

Outlook for Asian Paints y Rikesh Vinod Parikh Vice-President Markets Strategy and  -Equities Motilal Oswal Financial Services Ltd.

 

Asian Paints: Reported numbers were disappointing , largely led by volume decline of 2% compared to estimate of 12% growth. Overall full year numbers are expected to revised downward going forwards trend in sales growth would be tracked closely.