Asian Paints' Q1FY19 results (Outperformer) - Margin surprise drives earnings beat
Q1FY19 result highlights
- Asian Paints (APNT) consolidated revenues (net of excise duty) increased by 15% yoy at Rs44bn(est: Rs44bn), EBITDA increased by 31% yoy at Rs8.7bn(est: Rs8.3bn), Reported PAT increased by 30% yoy to Rs5.6bn (est: Rs5.3bn).
- Standalone revenues (net of excise duty) increased by 15.7% yoy at Rs37bn,EBITDA increased by 38% yoy at Rs8.2bn, Reported PAT increased by 35% yoy to Rs5.4bn. Standalone revenue growth was driven by double digit volume growth (~12%) in the decorative business and price hikes (~3.6%).
- Consolidated gross margins increased by 40bps yoy (standalone margins were up 80bps yoy) despite higher input costs. Staff cost increased by 7% yoy and other expenses were up by 5% yoy, resulting in EBITDA margin expansion of 250bps yoy to 19.9% (standalone EBITDA margins were up 370bps yoy).
- Subsidiary revenues were up 12% yoy impacted by difficult weather conditions and forex related issues.
Key positives: Healthy volume growth and EBITDA margin expansion in the standalone entity
Key negatives: Weak international business performance
Impact on financials: FY19/20E earnings estimate remain unchanged .We introduce FY21 earnings estimate
Valuations & View
APNT reported steady volume growth; however continued margin surprise resulted in earnings growth being ahead of expectations. With the recent rate reduction in GST, volume trajectory is expected to remain healthy for decorative segment. We expect 12% volume CAGR over FY18-21E for APNT. While input cost inflation and deferment of price hike will impact the gross margins in near term, we believe, cost efficiencies, benefits of operating leverage and eventual price hikes will continue to support standalone EBITDA margins. Further, likely improvement in Industrial and international business profitability over next few quarters will aid consolidated earnings growth. Given the positive longer term outlook and strong margin delivery, premium valuations (at 47x/40x for FY20/21E) are likely to sustain. Maintain Outperformer.
Asian Paints is engaged in manufacturing of a range of decorative paints, varnishes, enamels, and black & synthetic resins. Co., through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.