MOSL: ASIAN PAINTS (Neutral)-In-line quarter-price hike commentary leads to 9% earnings downgrade

Asian Paints: In-line quarter; price hike commentary leads to 9% earnings downgrade

(APNT IN, Mkt Cap USD20.4b, CMP INR1467, TP INR1405, 4% Downside, Neutral)

• Asian Paints (ANPT) reported consol. net sales growth of 15.1% YoY to INR43.9b (est. of INR46.5b), with calculated volume growth of ~10% (est. of 16%) in the domestic decorative paints business. Management mentioned in the press release that domestic paints volumes grew in double digits.
• Gross margin expanded by 40bp YoY to 43.2%. This, along with lower other expenses (-160bp YoY) and employee costs (-50bp YoY), led to EBITDA margin expansion of 250bp YoY to 19.9% (est. of 18.9%).
• EBITDA grew 31.4% YoY to INR8.7b (est. of INR8.8b; decline of 18.5% YoY in base quarter 1QFY18). Adj. PAT increased 30.4% YoY to INR5.7b (est. of INR5.8b; 20% decline in the base quarter).
• Standalone performance: Net sales grew 15.7% YoY to INR37.1b. Gross margin expanded 90bp YoY to 44.6%, while EBITDA margin was up 360bp YoY to 22.3%. Thus, EBITDA grew 38.1% YoY to INR8.2b. Adj. PAT increased 35.3% YoY to INR5.4b. Subsidiary sales grew 11.7% YoY to INR6.8b, with the EBITDA margin contracting 390bp YoY to 7.3%.
• Concall highlights: GST rate reduction will be passed on. If the company takes price increases, it would come under anti-profiteering lens. It may thus have to take a hit on margins.