Asian Paints (APNT) 1QFY15 results were above estimates, with consolidated sales at INR33.2b (est. INR32.5b), up 18% YoY, led by an estimated 10-11% domestic decorative paints volume growth. EBITDA margin contracted 10bp to 15.6% (est. 16%). Consolidated Adj. PAT was at INR3.6b, up 32.2% YoY (est. INR3.3b). Gross margin contracted 80bp YoY, in line with expectation, despite APNT taking multiple price hikes to offset the pressure on gross margin (1% and 1.2% effective May 1 and June 1, 2014 respectively). EBITDA margin contracted 10bp YoY and stood at 15.6%, primarily led by RM inflation (+80bp YoY), which was partially offset by savings in other expenditure (-40bp YoY) and employee costs (-40bp YoY). Lower tax rate (down 290bp YoY to 29.9%) and higher other income (up 67.3% to INR842m) drove the 32.2% YoY adjusted PAT growth. Reported PAT stood at INR3.4b, up 23.1%, impacted by one-off expenses (VRS to employees) pertaining to shutdown of Bhandup plant of INR251m. 1Q standalone sales, EBITDA and PAT growth stood at 17.6%, 13.8% and 17.6%, respectively. Concall highlights: a) While tier II and III demand is strong, 1Q saw an pickup in demand in some metros, b) Expect Industrial paints growth to be higher v/s FY14 and c) Capex guidance of INR5b (capacity expansion in Rohtak and Ankleshwar). Valuation and view: Consistent double digit decorative paints volume growth is a key positive. This was driven by superior performance of tier II and III towns along with demand revival in some metros, as per management. We tweak our estimates marginally upwards to account for 1QFY15 beat and higher other income. At 32.2x FY16E EPS, valuation is expensive given historical comparison, in our view. We maintain Neutral with a revised target price of INR560, valuing the stock at 30x FY16E.
Posted on: Sun, 27 Jul 2014 13:57:51 +0000
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