Motilal Oswal is bullish on Asian Paints and has recommended buy rating on the stock with a target of Rs 5000 in its January 22, 2013 research report.
“Asian Paints (APNT) has posted better than expected results for 3QFY13. Consolidated PAT grew 30.5% YoY to INR3.35b (v/s our estimate of INR3.15b). Revenue grew 18.7% YoY, 1.5% ahead of our estimate. Consolidated EBITDA margin expanded 80bp YoY to 16.3% (v/s our estimate of 16.7%), with gross margin expanding 90bp YoY.”
“Standalone (Decorative Paints) sales grew 20% YoY to INR25.2b. Gross margin expanded 90bp YoY and EBITDA margin expanded 50bp YoY to 17.4%. We expect APNT's domestic Decorative Paints volumes to have grown ~13% YoY, beating both consensus as well as our estimates. This was driven by strong festive season sales. Our channel checks suggest that paints demand remains healthy even in 4Q. International and industrial subsidiary/JV sales (imputed as the difference between consolidated and standalone entities) were up ~13% YoY. Operating margin expanded 200bp to 11%, as business in Middle East and Asia continued to outperform other international subsidiaries.”
“We raise our earnings estimates by 2% for FY14 and ~5% for FY15 to incorporate higher than estimated growth in volumes and other income, and improving gross margin trend. We like APNT's distribution, brand and thought leadership in the Indian Paints segment, which is expected to cross INR500b in size in the next three years, driven by rising incomes, growing urbanization, and consequently, rising number of nuclear families. We upgrade APNT to Buy, with a revised target price of INR5,000 (27x FY15E EPS). Spike in input costs and slowdown in discretionary demand are our key concerns,” says Motilal Oswal research report.
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