Asian Paints - Volumes surprise; new capacity causes blips - Edelweiss

Asian Paints' Q1FY14 sales growth (at 11.6% YoY) came in line with estimates though PAT was lower than estimates. Key positives were (i) double digit volume growth in domestic decorative business (likely gained share) despite heavy rainfall in June (which had impact on demand in southern and western regions of India); and (ii) expansion in gross margins in both, consolidated (148bps) and standalone (76bps) businesses. Key negatives were (i) compression in EBITDA margin by 119bps YoY due to higher employee costs (increase in provisions for gratuity and leave encashment), other expenses (commissioning of new plant, diesel costs, ad spends).

The company has already announced a 1% price hike from August 1, 2013. Exchange rate movement and diesel price hikes are key monitorables. Maintain 'BUY' on dips.

Source : Equity Bulls

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