Asian Paints reported a 31.7% rise in sales at Rs 1,876.8 crore for the fourth quarter ended March 2010 on the back of strong volume growth and better product mix. Operating profit was up 74% at Rs 310.90 crore while operating margins improved 400 basis points to 16.6%. Net profit was 91% higher at Rs 192.6 crore against Rs 101.2 crore in the same quarter a year ago. EPS for the quarter stood at Rs 20.
The company has aligned the accounting year for most of its foreign subsidiaries, as a result its Q4 numbers include three months extra and hence are not comparable. On an adjusted basis, too, the performance was impressive with top line growing at 14% and net profit, 76%.
The company reported a healthy 16.3% volume growth in domestic paints business. Volume growth in international business was sluggish at 6%. There was a healthy improvement in its gross margins at 44.2%.The management, however, said these margins levels will not be sustainable due to input costs pressure. Raw material cost has gone up by 6% from April 2010. As a corrective measure, Asian Paints has increased the price of decorative products by 4% across India in May.
Decorative paints business reported strong performance in Q4. Demand is expected to be robust in this category. The automotive paints segment also did well. Growth in industrial paints was a bit sluggish due to the economic slowdown. International business growth was not very encouraging. Nepal, Bangladesh and Egypt performed well, while Caribbean countries and the UAE were affected by economic slowdown. Going forward, the management is upbeat on the domestic business, while the outlook for the international business is bleak.
Asian Paints has embarked an Rs 300-crore capex for FY11, of which Rs 250 crore will be spent in India and the remaining on international business.
The company is a play on India?s economy growth story as there is a close correlation between GDP growth and industry sales. Historically, the industry sales have grown 1.5 to 2 times the growth rate of economy.
The company has a good track record of consistent growth and is almost debt-free, and the high ROE make it a safe bet.
The Street is quite bullish on the stock as 17 of the 22 analysts tracked by Bloomberg have a ?buy? rating. The consensus target price is Rs 2,318, which is a 10% upside from current levels.