We continue to be bearish on Asian Paints after the company announced its results for quarter ended June. Profit after tax declined 5% y-o-y despite a weak base. We cut EPS estimates by 3-6% (lower revenues, GMs and cost pressures) and cut target price to R4,050 (28-times September 14 estimated EPS). We retain our ?sell? rating on the stock.
Consolidated revenues at R2,820 crore rose 11% y-o-y, which is below our expectations (Citi/consensus: R2,880/ R2,830 crore). Decorative paints volume growth is estimated 10% y-o-y on a low base (no growth in FY13Q1).
Despite input cost tailwinds, Ebitda was flat and PAT down 5% to R440 crore and R280 crore ? missing our estimates by more than 10%. While some cost pressures (operating/capital costs on Khandala plant + higher fuel & freight costs) were known, the revenue miss, lower-than-expected GM expansion and certain negative surprises (discount rate change for gratuity/leave liabilities + FX loss) led to a sharp profit miss.
Rupee?s depreciation also played a spoilsport. About 40-45% of inputs are imported and, thus, weak rupee is a net negative. Soft global commodity prices have not flown through entirely. Titanium Dioxide was flat-to-marginally higher in rupee terms. However, there are structural positives. Asian Paints has a solid business benefiting from its dominant positioning, pricing power, extensive portfolio, slow, but steady premiumisation trends, and high entry barriers given the extensive dealer network.
Citigroup