Result Update: Asian Paints Ltd - ACCUMULATE - TP Rs.1320 - Kotak

Double digit volume growth in the decorative segment, stable volumes in the industrial segment and raw material price inflation were the highlights of the results for APL during the quarter.

Key Highlights

As per management commentary, APL experienced double digit YoY growth in the decorative segment. Healthy automotive demand and improved demand in the industrial segment led to strong performance of the entire industrial segment.

Nepal, Oman and Bangladesh contributed to good performance of international operations.

Both the underperforming segments of Home improvement business including Kitchen (Sleek) and bathroom (EssEss), have reported strong financial performance which is healthy for the company.

Management also indicated that the raw material prices remained at higher levels for the company during the quarter which impacted operational performance. Management has taken a price hike of 2.9% in March 2018 to counter the increase in raw material prices (total price hike taken 7% in FY18).

Other expenditure was significantly high in the quarter (+8.8% YoY and +29.2% QoQ), which impacted the operational performance.

Revenue was reported at Rs 44.8 bn (+13.4% YoY) with EBIDTA margin of 18.7% and PAT of Rs 4.96 bn. We interpret the results as healthy. Company has announced a final dividend of Rs 6 per share (total dividend Rs 8.7 per share for FY18).

Valuation and Outlook

We estimate that branded paint demand will remain robust in a country like India where per capita consumption is very low and 30% paint market is still unorganised. Management of APL also indicated that the volume trends remain strong for the company and expect the trend to continue in medium term. We broadly maintain our estimates. For APL, we estimate 11% volume CAGR over FY18 - FY20E with stable margins and ROE of ~23.6% and ROCE of ~32.5% for FY20E. Maintain Accumulate with an increased TP of Rs 1320 (from Rs 1300) at 45x FY20E earnings. which is a small premium for the market leader to valuation commanded by peers.

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.1289.6 as compared to the previous close of Rs. 1214.7. The total number of shares traded during the day was 306088 in over 13114 trades.

The stock hit an intraday high of Rs. 1294.4 and intraday low of 1227.2. The net turnover during the day was Rs. 390499876.

Source : Equity Bulls

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