Asian Paints’ (APL) Q3FY16 numbers were strong with a line by line beat versus our estimates. Key positives include: robust decorative volume growth at ~14% YoY (highest in past 7 quarters; 8% YoY in Q2FY16) aided by festive cheer, low base; gross margin catapulted (highest in the past 11 years) 328bps YoY and 88bps QoQ aided by lagged impact of commodity price correction; and (iii) robust growth in industrial and international businesses.
The only negative was impairment loss of Rs 525 million taken in Sleek business (we continue to remain concerned on lack of pick up in Sleek). Raw material prices having cooled further, we do not rule out a price cut in the next three months; we anticipate this to be a proactive step from the leader to ward off competition from smaller players. APL is among our top picks and our faith remains. We maintain ‘Buy’.
Standalone sales grew 13% YoY; 296bps y-o-y EBITDA margin expansion. Industrial business saw good sales growth with margin expansion. Ess Ess posted Rs 284mn sales (up 18% YoY); EBIT loss of Rs 74mn (INR224mn sales, Rs 102mn EBIT loss in Q2FY16).