Asian Paints' Q3FY19 results (Outperformer) - Volume growth outperformance drives earnings!
Q3FY19 result highlights
- Asian Paints (APNT) consolidated revenues (net of excise duty) increased by 24% yoy at Rs53bn(est: Rs48.5bn), EBITDA increased by 17% yoy at Rs10.4bn(est: Rs9.7bn), Reported PAT increased by 14% yoy to Rs6.5bn (est: Rs6.2bn).
- Standalone revenues (net of excise duty) increased by 26% yoy at Rs45bn,EBITDA increased by 21% yoy at Rs9.86bn, Reported PAT increased by 19% yoy to Rs6.3bn.
- Standalone revenue growth was driven by high double-digit volume growth (~20%+ vs our estimate of 12%) in the decorative business.
- Consolidated gross margins decreased by 120bps yoy (standalone gross margins down 140bps yoy), impacted by higher input costs. Staff cost increased by 19% yoy and other expenses were up by 26% yoy. EBITDA margins declined by 120bps yoy to 19.7% (standalone EBITDA declined by 110bps to 21.7%).
- Subsidiary revenues were up 12.6% yoy while profitability was weak with EBITDA decline of 22% yoy. The performance was impacted by challenging economic conditions and high input cost inflation.
- Industrial coating JV (AP-PPG) growth was driven by Protective & powder coatings. Automotive JV (PPG-AP) performance was impacted by subdued growth in Auto OEM and profits declined by 7% yoy impacted by higher input costs.
Key positives: Strong volume growth in decorative segment
Key negatives: Decline in gross margins, higher depreciation expense
Impact on financials: We have increased FY20/21E EPS by 2%/3%
Valuations & view
APNT reported a strong quarter driven by record volume growth in the decorative business. Baring uncertainty around elections, management commentary on the demand environment remains positive, which coupled with price hikes will continue to aid mid-teens revenue growth (factoring 11%/14% volume/revenue CAGR over FY19-21E). While new plant commissioning will lead to higher costs, healthy volume growth trends, benefit of price hikes and recent moderation in input costs will continue to drive healthy EBITDA & PAT growth in the medium term. With overall industry construct remaining favourable coupled with APNTs execution skill, earnings visibility remains strong and justifies the premium valuations (48x/42x FY20/21E). 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.