Motilal Oswal Maintains Buy on Asian Paints

ASIAN PAINTS 3QFY11: Below est; Decorative volume growth ~27%; High input costs depress margins; Maintain Buy

Asian Paints 3QFY11 results are below estimates. Consolidated sales grew 29.6% to Rs21b (est Rs20.4b).

Gross Margins declined 340bp YoY and EBIDTA margins declined 320bp YoY. Adj PAT increased 11% to Rs2.2b (est Rs2.45b).

Decorative volumes bounce back in 3QFY11; margins at FY08 levels; further margin downside unlikely

Consolidated margins decline 320bp; subsidiaries report flat sales; margins decline 450bp YoY but flat QoQ

We remain positive on volume growth due to 1) positive consumer sentiment 2) rise in constructions and 3) increasing aspiration for higher value-added paints.

Asian Paints continues to have strong pricing power and has affected 11% YTD price increase (2.9% in December 2010); we believe margin contraction from current levels is limited as current margins are close to FY08 margins. We would revise our estimates post conference call tomorrow. Based on current estimates, the stock trades at 22.6x FY12 EPS of Rs116 and 19x FY13 EPS of Rs138. Maintain Buy.

Source : Equity Bulls

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