Accumulate Asian Paints; target of Rs 1,818: Angel

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Angel Broking has maintained accumulate rating on Asian Paints with a target of Rs 1,818 in its report dated October 27, 2009.

"We have revised our Top-line estimates for FY2010E and FY2011E by 3-5%, modeling in a 12-13% volume growth, coupled with gains in market share (particularly in South India) and an improvement in the Product mix (emulsions showing strong growth). In terms of value growth, Asian Paints has already resorted to price cuts in order to boost volumes. However, benefits from excise rate cuts (14% to 8%) are likely to cushion the effect from Price cuts. In terms of Earnings, we have revised our estimates for FY2010E and FY2011E upwards by 13-20%, to factor in a higher Top-line, superior Margins and higher Other Income (in FY2010E).

At Rs1,676, the stock is trading at 20.3x its revised FY2011E EPS of Rs82.5. We maintain Accumulate on the stock, with a revised Target Price of Rs1,818, driven by: 1) a revision in the Earnings growth (better revenue visibility and Margin expansion), and 2) a higher P/E multiple (upgraded from 21x to 22x FY2011E EPS - 10% Premium to its 5-year historical average of 20x, owing to superior Earnings growth)."

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