Asian Paints will be a key beneficiary of falling crude oil prices in our view.
Asian Paints will be a key beneficiary of falling crude oil prices in our view. Crude oil prices are trending 30% below the past 12-month average. We build in gains from lower oil prices and revise our FY16/17E earnings estimates upwards by 17/10% and set a new Sept 2015 target price of R710.
Asian Paints will be a direct beneficiary of lower crude oil prices. Another key raw material, Titanium Dioxide has also been benign. Lower raw material costs pose upside risk to gross margin assumptions as benefits would flow in with a lag of 1-2 quarters. We build in 350 bps y-o-y expansion in gross margins for domestic decorative business in FY16e as a result.
- Petrol and diesel price today November 23: Rates steady for 19th day; Check price in Delhi, Mumbai here
- Petrol and diesel price November 16: Rates steady for 12th day straight; Check price in Delhi, Mumbai here
- Petrol, diesel excise duty cut by Rs 5, Rs 10 per litre on Diwali eve; cheaper fuel from today
Some gains to be offset by higher promotions/marketing investments. We also note the possibility of some of the benefits being passed on to consumers in the form of price cuts and higher brand investments. We assume marginally negative pricing growth in FY16e expecting no price increases and some gains to be passed on to consumers. We also forecast higher brand investments to push for volume growth. As a result we estimate EBITDA margin expansion of 300 bps in FY16e.
Key upside risk to our EPS estimates is a more prolonged/severe reduction in crude oil/titanium dioxide prices and higher volume growth rate Key downside risk is increase in raw metarial costs, competitive spends and lower demand growth.