**[investwise]** Asian Paints: Consistently Making New Highs

 

Asian Paints-The Star Performer The Q3 traditionally is the festive season for India. With good rains, good crops, & good auto sales-the ensuing season for decorative paints should be a scorcher for the largest decorative paints producer in the country. Not without reason is the stock making new and newer highs. We expect strong performance in Q4FY10. In line with the strong quarterly performance of other paint companies, we expect APL's net sales to grow 21% YoY on the back of robust volume growth of ~24% in Q4FY10E. Benign input costs on YoY basis are expected to keep raw material cost-to-sales low at 56.5% in Q4FY10E vis-à-vis 61.3% in Q4FY09. As a result, operating profit margin (OPM) is expected to rise 663bps YoY at 19.2%. Recurring PAT is expected to grow a whopping 97.6% to Rs2bn in Q4FY10E. OPM in FY11E to be higher than historical, but lower than FY10 levels. APL recently increased prices ~3% to offset marginal increase in input costs and excise duty. The price increases coupled with softening in price of crude and higher operating leverage will enable the company to register standalone OPM of 19.2% in FY11E, higher-than-historical levels of 16% but lower than the 20.5% margin achieved in FY10E. Revise earnings upwards 4.7% for FY11E & FY12E. On the back of recent price increases, strong volume growth and improving product mix, we revise FY11E and FY12E EPS 4.7% each. Reiterate BUY – Maintain as top pick. At FY11E P/E of 22.8x, APL trades at ~7% premium to its three-year median P/E (versus other mid-cap FMCG companies that trade at 10-25% premium to historical multiples). We maintain APL as our top pick in the consumer space (along with ITC and Titan) and value it at FY12 P/E of 24x. Reiterate BUY. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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