ICICIdirect.com's report on Asian Paints
Asian Paints reported a topline growth of ~16% YoY on the back of ~12% YoY growth in volume and ~4% YoY hike in price in Q2FY15. Volume growth in the decorative segment was largely driven by intact demand in tier-II and tier-III cities in the festive season.
EBITDA margins declined 164 bps YoY led by ~25% YoY increase in both employee cost and other cost. The spike in employee cost is attributable to higher gratuity provisioning while the sharp growth in other expenses was driven by a spurt in advertisement cost.
PAT increased 6% YoY supported by ~6% YoY rise in other income and 41% decline in interest outgo.
"APL has recorded revenue, PAT CAGR of 19.6%, 33%, respectively, supported by volume CAGR of ~16% during FY05-08. Better operating leverage led to an EBITDA margin expansion of 200 bps during the same period. We expect revenues and PAT to grow at a CAGR of 18.6% each for FY14-17E. We expect operating margins to inch up 60 bps by FY17E driven by high operating leverage due to sustained volume growth in decorative paints and a recovery in industrial paints demand. APL witnessed sustained revenue growth of 15-18% over the last five years. We believe the robust pace of growth in revenues and earnings would continue for a prolonged period with the economic recovery and GDP growth coming back on track. Also, high cash on the books could lead to an increase in dividend payout and improvement in RoEs. We roll over our valuation on FY17E considering the revival in the Indian economy and value the stock at 33x its FY17E earnings with a revised target price of Rs 733 per share and BUY recommendation", says ICICIdirect.com research report.
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