Asian Paints - Q4FY20 Result Update - ICICI Securities

Asian Paints (APL) reported ~2% volume growth in Q4FY20 despite loss in business in March 2020 owing to lockdown. Strong double volume growth in the first two months of Q4FY20, was enough to offset loss in volume due to lockdown in the second half of March 2020. However, revenue growth was largely marred by low realisation due to change in mix as the company continued to focus on economic product categories. Further, sharp gross margin expansion (up 414 bps YoY, 280 bps QoQ) was on account of benign raw material prices, partially offset by higher fixed cost. Hence, the EBITDA margin increase was limited to ~80 bps YoY, mostly in line with our estimate of ~18.5%. Finally, lower sales and higher effective tax rate negated the impact of better margin, and the company reported a flattish PAT of Rs. 480 crore. According to the management, rural and suburban regions are witnessing a faster recovery. These regions are likely to drive demand of the company, going ahead. The lower raw material prices and rationalisation of some of the fixed costs are likely to keep EBITDA margins elevated. We maintain our positive stance on the stock given its strong balance sheet and robust dealer network.

Valuation & Outlook

Asian Paints, with its prudent balance sheet management, stringent control on working capital cycle, is expected to easily navigate through this challenging demand condition. However, we believe most positives are priced in the stock at CMP. Hence, we revise rating from BUY to HOLD.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_AsianPaints_Q4FY20.pdf

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.1748 as compared to the previous close of Rs. 1683.65. The total number of shares traded during the day was 297632 in over 21980 trades.

The stock hit an intraday high of Rs. 1813.1 and intraday low of 1686.2. The net turnover during the day was Rs. 526472347.

Source : Equity Bulls

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