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Asian Paints: Hit hard by the slowdown - Views on News from Equitymaster

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Asian Paints: Hit hard by the slowdown

Jan 27, 2009

Performance summary
  • Revenues grow by 12% YoY during 3QFY09 impacted by the current economic slowdown.
  • EBDITA margins nearly halve to 8% during the quarter due to a rise in all expenses (as percentage of sales).
  • Sharp fall in operating profits coupled with lower other income and higher depreciation charges lead to a 50% YoY decline in the bottomline.

Consolidated results
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 11,776 13,210 12.2% 32,713 40,383 23.4%
Expenditure 9,921 12,117 22.1% 27,688 35,480 28.1%
Operating profit (EBIDTA) 1,856 1,093 -41.1% 5,025 4,903 -2.4%
Operating profit margin (%) 15.8% 8.3% 15.4% 12.1%
Other income 132 122 -7.8% 486 403 -17.0%
Interest 54 66 21.4% 173 189 9.3%
Depreciation & amortisation 150 202 34.8% 437 543 24.1%
Profit before tax 1,783 946 -46.9% 4,901 4,575 -6.6%
Tax 537 291 -45.9% 1,556 1,444 -7.2%
Prior period items (1) (6) 7 (20)
Extraordinary item 1 - (71) -
Profit after tax 1,246 650 -47.9% 3,282 3,111 -5.2%
Minority interest (58) (60) - (135) (144) 6.4%
Net income 1,189 590 -50.3% 3,147 2,967 -5.7%
Net profit margin (%) 10.1% 4.5% 9.6% 7.3%
No. of shares (m) 95.9 95.9
Diluted earnings per share (Rs)* 41.1
Price to earnings ratio (x)* 20.1
(*trailing 12-month earnings)

What has driven performance in 3QFY09?
  • For 3QFY09, revenues on a consolidated basis grew by 12% YoY. This growth was much lower than the 30% YoY growth recorded in 1HFY09. Since the growth of the paint industry is correlated to the GDP growth, the latter having slowed down, the growth of the paint sector was restricted as well. While the company has not divulged the details of the segmental revenues, the performance of the automotive paints business must have been lower than that of the decorative paints business given the sharp fall in auto sales. As far as the international operations are concerned, the Middle East and South Asia registered good growth.

  • Asian Paintsí operating margins during 3QFY09 nearly halved to 8% during the quarter largely due to a rise in raw material costs (as percentage of sales) from 58.7% in 3QFY08 to 63.9% in 3QFY09. Since the company imports a larger part of its titanium dioxide requirements, the sharp depreciation of the rupee against the dollar could have partly resulted in the steep increase in raw material costs. Staff costs and other expenditure increased as well. For the nine-month period, operating margins declined from 15.4% in 9mFY08 to 12.1% in 9mFY09.

  • Due to the 41% YoY drop in operating profits during the quarter, net profits too declined by 50% YoY. Reduction in other income and higher depreciation charges also contributed to the decline. For the nine-month period, however, the decline was considerably lower at 6% YoY due to the strong performance reported by the company during 1HFY09.

What to expect?
At the current price of Rs 801, the stock is trading at a multiple of 8.8 times our estimated FY11 earnings. Given Asian Paintsí subdued performance during the quarter, we shall have to downgrade our estimates for the full year. We shall soon update our research report on the company.

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