Stock Market Update on Asian Paints for 1QFY2012

Stock Market Update on Asian Paints for 1QFY2012 with a Neutral recommendation
 

For 1QFY2012, Asian Paints posted a good set of numbers on the top-line and the earnings front. The top line grew by 23.5% yoy to `2,260.4cr (`1,830.2cr), marginally above our estimates. Earnings grew by 16.5% yoy to `271.6cr (`233.1cr), also marginally above our estimates, on account of good top-line growth, higher other income and a 45bp yoy decline in tax rate. The company’s operating profit declined by 162bp yoy to `392.2cr (`347.1cr) on account of high raw-material costs, staff costs (up by 74bp yoy) and other expenses (up 37bp yoy). We maintain our Neutral view on the stock.

Outlook and valuation: Post 1QFY2012 results, we maintain our previous estimates, as we had factored in relative sluggishness in demand in the company’s international business. Also, we do not expect any positive surprises in the standalone business in terms of volume growth or better gross margins and operating margins. The company has taken price hikes of ~8% from April 2011 till date and did not rule out further price hikes in the event of any hike in key
raw-material prices. Until now, volume growth has not taken any hit, but it may eventually drop in lieu of any price increase. We remain cautious as no significant growth has been witnessed in the international business. At `3,140, the stock is trading at 24.9x FY2013E revised EPS of `126.3. We believe the stock is richly valued and offers limited upside from the CMP. Hence, we maintain our Neutral view on the stock.

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