Asian Paints' Q4FY19 results (Outperformer) - Adverse mix & higher input costs drives earnings miss
Q4FY19 result highlights
- Asian Paints (APNT) consolidated revenues increased by 12% yoy at Rs50.1bn(est: Rs51.5bn), EBITDA decreased by 2% yoy at Rs8.2bn(est: Rs9.7bn), Reported PAT fell by 2% yoy to Rs4.9bn (est: Rs5.8bn).
- Standalone revenues increased by 12% yoy at Rs42bn,EBITDA decreased by 2% yoy at Rs7.7bn, PAT fell by 2% yoy to Rs4.8bn.
- Standalone revenue growth was driven by low double-digit volume growth in the decorative business. We believe, negative mix on account of higher growth in lower end products has also resulted in overall revenue growth being lower despite mid-single digit price hikes
- Consolidated gross margins decreased by 160bps yoy (standalone gross margins down 170bps yoy), impacted by higher input costs. Staff cost increased by 21% yoy and other expenses were up by 13% yoy (higher marketing spends). EBITDA margins declined by 230bps yoy to 16.4% (standalone EBITDA declined by 260bps to 21.7%).
- Subsidiary revenues were up 10.5% yoy while profitability was weak with EBITDA decline of 3% yoy. The performance was impacted by challenging economic conditions in Egypt, Ethiopia, Bangladesh and Sri Lanka 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 associate profits increased by 16.9% yoy.
Key positives: Double-digit volume growth in decorative segment
Key negatives: EBITDA margins fell by ~230 bps
Impact on financials: Cut FY20/21E EPS by ~9-10%
Valuations & view
Despite double-digit volume growth in decorative segment, APNT reported weak quarter impacted by adverse mix, higher input costs and higher overheads due to commissioning of new plant. While near term demand environment remains challenging, we believe APNT will outperform peers in terms of volume growth considering higher skew to decorative paints business which coupled with its ability to take price hikes provides a relatively better earnings visibility (16% CAGR over FY19-21E) in the consumer coverage space & justifies premium valuations. 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.
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