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Thursday, July 23, 2009

Asian Paints Ltd and United Breweries:-Future growth prospects and outlook

1)Scripscan:Asian Paints Ltd

Story:The company''s consolidated PAT rose 7% y-o-y, driven by a strong 25% y-o-y revenue growth. This was in contrast to the expectation of a 20% profit decline.During the analyst meeting, the management indicated that: a) demand in the key decorative paints business continues to remain firm, b) growth in the international business remains steady and c) cost pressures are abating. A large broekrage house has oncreased its target price to Rs 1,090 from Rs 801 based on 20x September FY10E EPS. It also raises target multiple to 20x from 18x, in line with the average multiple of the past five years. Over the last year, Asian Paints has underperformed the FMCG index by 10%; more recently year to date (YTD), it has underperformed the broad market and peers by 22% and 4% respectively.

2)Scripscan:United Breweries

Story:UBL?s Q409 net sales grew 20.9% y-o-y, above the expectation, to Rs. 460 crore primarily on the back of improved market share. Besides, EBITDA margin improved by 526 bps y-o-y to 18.6% in Q409. The improvement was largely due to a fall in employee cost and advertisement cost as percentage of sales. Considering the improved operating performance,A large brokerage house has revised revenue growth, margin estimates and target price. However, due to high leverage levels and expensive valuation, it maintains `Sell rating. The stock appears expensive at the current market price considering UBL?s low RoE (return on equity) of 12% with a current P/E of 65x when compared to FMCG companies, which command RoE of 60-65% and trade at relatively lower P/E of 20-22x. Moreover, UBL?s free cash flow per share is likely to remain low at Rs. 1.8 in FY10 on account of heavy capex plans, which represents a tiny FCF (free cash flow) yield of 1.5%.

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