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You are here : IndiaNotes >> Research & Analysis >> Companies >> Asian Paints Ltd. >> Research

Asian Paints Q3FY18: Earnings In-line; Miss on Volumes; Upside 15%

Reliance Securities | 24 Jan, 2018  | Follow Author | Add to my Favourites 
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Asian Paints has posted a mixed set of results in 3QFY18. While its consolidated revenues grew by 10.5% YoY to Rs42.6bn missing our estimate of Rs45.6bn, EBITDA rose by 17.7% YoY to Rs 8.9bn marginally ahead of our estimate of Rs8.8bn. Its net profit increased by 19.6% YoY to Rs5.7bn,
in-line with our estimate of Rs5.7bn. Volumes in decorative business grew by 5-6% YoY vs. our estimate of 10-11% YoY growth.

Revising our earnings estimate downwards by 4% for FY19E, we expect Asian Paints’ revenue and earnings to clock 13.7% and 14.6% CAGR through FY17-20E. Looking ahead, we continue to believe that trade stabilisation post GST roll-out, good monsoons aiding agriculture growth,
continued premiumisation and strong pricing power will drive earnings for Asian Paints. Hence, we maintain our BUY recommendation on the stock with a revised Target Price of Rs 1,341 (from Rs 1,354 earlier).

Outlook & Valuation

Despite lower-than-estimated growth in volume, we expect recovery in demand in coming quarters on the back of continued premiumisation trend and strong growth in rural markets coupled with visible recovery in urban demand. We also expect EBITDA margins to witness steady increase on the back of possible pricing action and continued cost rationalisation measures. Based on expected EPS of Rs31.6, the stock trades at 37x FY20E earnings, which is lower compared to its average forward multiple of 46x in past three years. Hence, we maintain our BUY rating on the stock with a revised Target Price of Rs1,341 (from Rs 1,354 earlier).
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.

 




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