Asian Paints: Strong topline growth, weak EBITDA margins - Ambit

Asian Paints reported continued premiumisation of its product portfolio and market share gains, with volume growth of 10-11% YoY in 1QFY14. However, EBITDA margins reduced by 120bps YoY due to: (a) one-off impact of the revaluation of gratuity provisions and higher advertising spends; and (b) impact of higher fuel costs (from higher diesel prices and initial operating costs of the newly commissioned manufacturing plant in Khandala). We remain optimistic about the company's ability to gain market share and lead the race towards premiumisation of the product portfolio. However, we revise our EPS forecasts downwards by ~5% for FY14 and by ~3% for FY15 given higher tax rate, depreciation and fuel costs. The stock is currently trading at 29.0x FY15 EPS (and 2% higher than our target price of Rs4,932). We will review our stance given the recent rally of over 10% in its share price.

Source : Equity Bulls

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