MOSL: Asian Paints (Neutral) - Double-digit volume growth, sales in-line, PAT hurt by higher tax rate

Asian Paints: Double-digit volume growth, sales in-line, PAT hurt by higher tax rate

(APNT IN, Mkt Cap USD17.8b, CMP INR1215, TP INR1280, 5% Upside, Neutral)

• ANPT’s consol. net sales grew 14.7% YoY to INR44.8b (est. INR45.1b), with calculated volume growth of ~10% (est. of +8%) in the Domestic Decorative paints business. Management mentioned in the press release that volumes grew in double-digits led by improved demand conditions.
• Gross margin contracted 50bp YoY to 43.2%, but the impact was offset by lower other expenses (-80bp YoY) and employee expense (-30bp YoY). EBITDA margin, thus, expanded 60bp YoY to 18.7% (est. of 17.4%).
• FY18 consol. performance: Sales, EBITDA and adj. PAT grew 11.7%, 7.1% and 1.9%, respectively. EBITDA margin contracted 80bp YoY to 19.0%.
• Standalone performance: Net sales grew 13.7% YoY to INR37.8b. Gross margin expanded 20bp YoY to 44.7%, while EBITDA margin was up 160bp YoY to 20.8%. Thus, EBITDA grew 22.9% YoY to INR7.9b. Adj. PAT increased 11.5% YoY to INR4.9b.
• Subsidiary sales grew 20.4% YoY to INR7.1b. EBITDA margin shrunk 400bp YoY to 7.7%.
• Analyst meet highlights: (1) Indian economy continues exhibiting signs of recovery, but at a slow pace. Paint industry saw better demand in 2HFY18. (2) APNT took a price increase of 1.4% from 1st March’18 and another 2% from 1st May’18.