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Recommendations India

Asian Paints 3QFY2014 performance highlights and results update

January 22, 2014, Wednesday, 14:09 GMT | 10:09 EST | 18:39 IST | 21:09 SGT
Contributed by Angel Broking

For 3QFY2014, Asian Paints (APL) posted a 1.8% yoy degrowth in its bottom-line as the OPM declined by 170bp. The fall in the OPM is on account of higher raw material costs, employee expenses and other expenses, during the quarter. Volume growth for the domestic decorative business decelerated to ~8% from ~11-12% reported during 1HFY2014.
Key highlights of the quarter: For 3QFY2014, APL posted a 12.4% yoy growth in net sales to Rs.3,413cr, which is in line with our estimates. The domestic decorative business posted a double digit growth, aided by healthy demand from tier 2 and tier 3 cities. The company also carried out cumulative price hikes of 4.1% during the year which aided revenue growth in the decorative business. APL has announced further price hikes of 2.1% (w.e.f February 1, 2014) to combat the increase in raw material costs. The Management indicated that certain premium and economy segments continue to post strong growth while industrial paints and automotive coatings segments continue to be impacted by slow-down in the economy. The company’s OPM fell by 170bp on a yoy basis to 14.6% due to high cost of inventory carried forward, provisioning for employees’ wage settlement, increase in transportation costs due to strike in Sriperambudur plant and expenses related to stake purchase in Berger International. APL’s Middle East and Asia businesses continued to perform well.
Outlook and valuation: Over FY2013-15E, we expect the company to post a CAGR of 15.6% and 16.2% in its top-line and bottom-line respectively. At the current market price, the stock is trading at 30.6x FY2015E earnings. We maintain our Neutral view on the stock.