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Asian Paints: Regains momentum - Views on News from Equitymaster
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Asian Paints: Regains momentum
Jan 24, 2011

Asian Paints announced 3QFY11 results. Topline increased by 29.6% YoY during the quarter. However, the bottom line grew at a modest pace of 11.0% YoY due to increase in overall expenditure and depreciation expenses. Here is our analysis of the results.

Performance summary
  • Topline grew at a healthy pace of 29.6% YoY in 3QFY11. After a flattish revenue growth registered during the last quarter due to delays in construction activity, the festive season prevalent in Oct-Dec period enabled the company to post healthy revenue growth.
  • Operating margins declined to 16.4% this quarter as compared to 19.6% in 3QFY10. The dip was due to raw material price escalation. It may be noted that prices of titanium dioxide (key raw material input) have been on a rise since the last six months impacting margins.
  • Net profits increased 11% YoY in 3QFY11 despite healthy revenue growth due to increase in operating expenses as a percentage of sales.

Consolidated financial snapshot
(Rs m) 3QFY10† 3QFY11**† Change 9MFY10† 9MFY11**† Change†
Sales 16,200 †20,996 29.6% ††48,042 57,406 19.5%
Expenditure 13,020 17,547 34.8% 38,876 47,171 21.3%
Operating profit (EBDITA) 3,180 3,449 8.5% 9,166 10,235 11.7%
Operating profit margin (%) 19.6% 16.4%   19.1% 17.8%  
Other income 167 194 16.1% 1,197 627 -47.7%
Interest 79 59 -26.1% 215 ††††146 -32.0%
Depreciation 197 286 45.8% 594 840 41.3%
Profit before tax 3,073 3,298 7.3% 9,556 9,876 3.4%
Tax 955 974 2.0% 2,864 2,971 3.8%
Minority interest 133 120 -9.2% 261 333 27.2%
Profit after tax/(loss) 1,986 2,203 11.0% 6,431 6,572 2.2%
Net profit margin (%) 12.3% 10.5%   13.4% 11.4%  
No. of shares (m)         95.9  
Basic & diluted earnings per share (Rs) *         †††68.5  
P/E ratio (x) *         29.5  
** Consolidation for overseas subsidiaries is not on a like-to-like period basis making the comparision ineffective

What has driven performance in 3QFY11?
  • Net sales increased 29.6% YoY in 3QFY11. After a flattish growth registered during the past quarter due to prolonged monsoon, the ongoing festivities in the third quarter ensured a healthy top-line growth. Going forward, demand conditions for decorative paints are expected to remain stable. Nonetheless, demand for industrial paints is still lagging and the situation is expected to improve gradually over a period of time.

  • Asian Paintsí operating margin stood at 16.4% in 3QFY11, a decline of 320 bps over 3QFY10. In light of raw material price inflation, the company has already increased the blended prices thrice during the year under review. However, the raw material prices are not expected to cool down soon and thus the margins are expected to remain under pressure.

  • Bottom line increased 11.0% YoY during the quarter due to increase in overall expenditure and higher depreciation charges.

What to expect?
At the current price of Rs 2,615, the stock is trading at 20 times our estimated FY13 earnings. Although Asian Paints remains a preferred play given the quality of the management and healthy growth prospects, valuations are above our comfort zone. As a result we maintain our view on the stock.

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