Asian Paints - 2QFY13 Results Update - Motilal Oswal

Asian Paints (APNT) posted in-line results for 2QFY13, with consolidated PAT up 15% YoY to INR2.4b (v/s our estimate of INR2.4b). Revenue grew 16.5% YoY, 2.5% ahead of our estimate. Consolidated EBITDA margin declined 50bp YoY to 13.8% (v/s our estimate of 15%), despite flat gross margin. Higher staff costs (up 10bp YoY) and overheads (up 30bp YoY) led to the EBITDA margin decline.

- Standalone sales grew ~16.2% YoY. Gross margin was flat YoY but contracted 265bp QoQ. EBITDA margin expanded 20bp YoY to 15.2%, led by operating leverage.

- We estimate that APNT's domestic decorative paints volumes (part of the standalone entity) increased ~6% YoY. Though modest, this is a good recovery after 2% YoY volume decline in 1QFY13, more so given the higher base (15% YoY volume growth in 2QFY12) and shift in festive season (Diwali) to November. We expect volume growth to accelerate going forward led by festive demand.

- Sales of international and industrial subsidiaries/JVs (imputed as difference between consolidated and standalone entities) were up 18% YoY. However, operating margin declined 270bp YoY to 7.4%.

- We maintain our revenue and earnings estimates for FY13 and FY14. Festive season demand has begun on a good note and we expect Asian Paints to benefit from softening in Tio2 and currency appreciation in 2HFY13. The stock trades at 32.1x FY13E and 27.3x FY14E EPS, respectively. We maintain Neutral rating on APNT given the rich valuations.

Source : Equity Bulls

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