Asian Paints' Q1FY20 results (Outperformer) - Strong start, earnings visibility remains healthy
Q1FY20 result highlights
- Asian Paints (APNT) cons. Rev. grew by 17% yoy at Rs51bn (est: Rs48bn), EBITDA grew by 24% yoy at Rs11.5bn (est: Rs9bn), PAT grew by 18% yoy to Rs6.7bn (est: Rs5.7bn). Standalone rev. grew by 18% yoy at Rs44bn, EBITDA grew by 25% yoy at Rs10.9bn and PAT grew by 21% yoy to Rs6.5bn. All financials are comparable yoy as IndAS 116 impact has been accounted for in the base quarter as well.
- High double-digit volume growth in the decorative was led by a) aggressive channel push across markets, b) healthy growth in smaller towns compared to urban, c) strong growth in economy segment led by market share gains and d) healthy growth in project business.
- Cons. gross margins were up by 20bps yoy/130bp qoq (standalone gross margins +20bps yoy/+180bp qoq), led by lower input costs. Staff cost increased by 14% yoy and other expenses were up by 10% yoy. Lower adspends, leverage benefit & savings on distributions resulted in overhead growth being lower. EBITDA margins were up by 130bps yoy to 22.5% (stdl EBITDA margins were up 140bps yoy).
- Subsidiary revenues were up 10% yoy, profitability improved with EBITDA growth of 12% yoy. The performance was impacted by challenging economic conditions in Egypt, shutdown in Sri Lanka. Industrial coating JV (AP-PPG) growth was weak due to muted performance in powder coatings. Automotive JV (PPG-AP) performance was impacted by subdued growth in Auto OEM.
Key positives: Double-digit volume growth in decorative segment
Key negatives: Weakness in certain international segments.
Impact on financials: Increase FY20/21E EPS by ~7% each.
Valuations & view
APNT has started FY20 on strong note with double digit volume growth and beat across line items. While near term demand environment remains challenging, we believe APNT should be able to navigate the same considering its internal initiatives (innovative schemes/distribution expansion), share gains in economy segment coupled with a wider home solution portfolio. Further, favourable input costs environment and strong control over SG&A (leverage benefit, savings on distribution with new facilities commissioning) provides a relatively better earnings visibility (21% CAGR over FY19-21E) in the consumer coverage space & justifies premium valuations. Maintain Outperformer. Key risks: Slowdown in consumer demand and adverse movement in crude/crude derivatives.
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.
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