24 July 2019
1QFY20 Results Update | Sector: Consumer
Asian Paints
Sell
BSE SENSEX
37,848
S&P CNX
11,271
CMP: INR1,484
TP: INR1,230 (-17%)
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Stellar results but outlook uncertain; valuations stretched
Consol. net sales increased 16.9% YoY
to INR51.3b (our estimate: INR48.7b;
consensus: INR48.9b), with calculated volume growth of ~16% (our
estimate: 8%) in Domestic Decorative Paints business. EBITDA was up 24.4%
YoY to INR11.6b (our estimate: INR8.5b; consensus: INR9.1b), while adj. PAT
rose 17.9% YoY to INR6.7b (our estimate: INR5.2b; consensus: INR5.5b).
Concall highlights:
(1)
Management highlighted the need to be watchful
given the weak economy and the poor progress on monsoon.
(2)
The gross
margin trend in 1QFY20 is likely to continue going forward.
Valuation and view:
We increase our EPS estimate for FY20/21 by
6.7%/3.7% as we make changes to our model following the beat in 1Q.
While results were strong amidst a muted operating environment, the
ongoing economic slowdown adds an element of uncertainty to the earnings
growth prospects, particularly given APNT’s massive capacity expansion
(addition of 50% to Sept’18 capacity up to Mar’19; to be scaled up to 100%
by Mar’20). The deteriorating product mix and the weak progress on
monsoon could further sour the case for earnings acceleration. Moreover
the volatile EBITDA growth trajectory in recent quarters (30%, -2%, 17% and
-2%, from 1QFY19 to 4QFY19) makes it hard for one to extrapolate on the
1QFY20 results. PAT CAGR has been a meager 6% over the past three years,
and given the challenges indicated above (and despite earnings upgrade
post the good numbers in 1QFY20), FY20 appears poised for another year of
low PAT growth. RoCE, which stood at close to 40% at the beginning of the
decade, deteriorated to 28% in FY16 and further to 21.3% in FY19 (far
inferior to peers). Against this backdrop, valuations of 49.7x FY21E EPS (40%
premium to peer average, despite moderate earnings prospects and inferior
RoCE) appear stretched. We, thus, maintain our Sell rating on the stock with
a target price of INR1,230 (40x June’21E EPS).
(INR Million)
FY19
2Q
3Q
4Q
11.0
21.0
10.0
46,391 52,940 50,182
8.8
24.3
11.9
18,467 21,690 20,856
39.8
41.0
41.6
7,842 10,430 8,230
16.9
19.7
16.4
-2.1
17.0
-2.0
121
148
153
947 1,154 1,301
633
452
569
7,406 9,580 7,344
2,427 3,263 2,529
32.8
34.1
34.4
5,060 6,472 4,875
-3.8
14.1
-1.7
1Q
16.0
51,306
16.9
22,337
43.5
11,563
22.5
24.4
268
1,926
736
10,104
3,505
34.7
6,721
17.9
FY20
FY19 FY20E
FY20 Var.
2QE
3QE
4QE
1QE (%)
9.0
2.0
14.0
13.0
10.0
8.0
53,349 56,646 60,157 193,415 221,458 48,732
5.3%
15.0
7.0
19.9
15.0
14.5
11.0
23,104 24,341 25,805 79,992 95,587 20,093
11.2%
43.3
43.0
42.9
41.4
43.2
41.2
9,978 11,160 11,175 35,245 43,875 8,488
36.2%
18.7
19.7
18.6
18.2
19.8
17.4
27.2
7.0
35.8
10.2
24.5
-2.9
201
211
224
510
903
75
1,990 2,307 2,866
4,307
9,089 1,321
684
488
548
2,271
2,456
666
8,472 9,130 8,632 32,699 36,339 7,757
30.3%
2,880 3,104 2,865 10,988 12,355 2,637
34.0
34.0
33.2
33.6
34.0
34.0
5,640 6,119 5,745 22,119 24,225 5,188
29.5%
11.5
-5.5
17.9
9.1
9.5
-9.2
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
APNT IN
959
1423.1 / 20.6
1530 / 1120
11/3/-2
1907
47.2
Financials & Valuations (INR b)
Y/E Mar
2019 2020E
Net Sales
193.4
221.5
EBITDA
35.2
43.9
NP
22.1
24.2
EPS (INR)
23.1
25.3
EPS Gr. (%)
9.1
9.5
BV/Sh.(INR)
99.2
107.7
RoE (%)
24.7
24.4
RoCE (%)
21.3
21.5
P/E (x)
64.3
58.7
EV/EBITDA (x)
39.7
31.9
2021E
252.5
51.0
28.7
29.9
18.3
118.4
26.4
23.5
49.7
27.2
Estimate change
TP change
Rating change
Quarterly Performance (Consol.)
Y/E March
1Q
Est. Dom. Deco. Vol. gwth (%)
10.0
Net Sales
43,903
Change (%)
15.1
Gross Profit
18,980
Gross Margin (%)
43.2
EBITDA
9,297
Margin (%)
21.2
Change (%)
39.7
Interest
210
Depreciation
1,358
Other Income
617
PBT
8,346
Tax
2,761
Effective Tax Rate (%)
33.1
Adjusted PAT
5,700
Change (%)
30.1
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.