Tag - coatings

Asian Paints 1QFY20 result highlights: Performance beyond street estimates, uncertain about sustainability.

Dated: 25th July 2019

1QFY20 result:

  • Consolidated Revenue was Rs 51,306 mn, 17% higher YoY.
  • EBITDA was Rs 11,563 mn, 24% higher YoY. EBITDA margin reported at 22.5%, an improvement from 21.1% in 1QFY19.
  • Net Profit was Rs 6,721 mn, 18% higher YoY.

Management Commentary:

  • Asian Paints saw double-digit volume growth across segments. Lower value products like distemper and putty continue to grow faster than premium products. In 1QFY20, decorative paints segment in the Indian market grew in high double digits.
  • Asian Paints undertook aggressive channel push in 1QFY20 contributing to the higher revenue growth.
  • Growth in smaller towns has been much higher than metros.
  • EBITDA margin improvement came from benign raw material prices and a decrease in freight cost from the new plants in Vizag and Mysore.
  •  Employee costs in 1QFY20 fully reflect the incremental costs from new plants. Other expenses will grow as production ramps up.
  • Advertisement costs are generally lower in the 1st quarter. Some of the ad costs shifted from 1QFY20 to 4QFY19 due to IPL season.
  • Management is cautious about the growth going forward. Economic conditions remain challenging and may result in a negative impact on the coatings business. Uncertainty also exists in the International business due to developments in the Middle East.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 1,496/- on 25-Jul-19. It traded at 55x / 48x the consensus EPS for FY 20E / FY 21E EPS of Rs 27.3 / 30.9 respectively.
  • Consensus target price of Rs 1,516/- implies a PE of 49x on FY21E EPS of Rs 30.9.