Hold Asian Paints; target Rs 2957: R K Global

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Hold Asian Paints; target Rs 2957: R K Global

R K Global has maintained hold rating on Asian Paints with a target price of Rs 2957 in its January 23, 2012 research report.

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RELATED NEWS Buy TCS; target of Rs 1165: FIFL Accumulate MindTree; target of Rs 497: Aditya Birla Money Accumulate HDFC Bank; target of Rs 510: PLilladher ALSO READ See previous views by R K Global See what other Experts & Brokerages are saying about Asian Paints See messages about Asian Paints Asian Paints BSE | NSE 29/05/12 Are Mutual Funds betting on Asian Paints?

R K Global has maintained hold rating on Asian Paints with a target price of Rs 2957 in its January 23, 2012 research report.

"Asian Paints has clocked a modest growth of ~20% YoY for Q3FY'12 (lower than our ~31% estimated growth rate) jump in the standalone Net Revenue at Rs 21,095 mn and ~21% increase in the Net Profit at Rs 2,505 mn. But saw a fall in the operating margins by ~169 bps mainly on the back of spike in the raw materials cost fueled by depreciating INR; profits would have been much higher & closer to our estimation,"

"The company witnessed growth on the back of volume growth in the months passing will remain strong, especially in the rural regions where income has increased in accordance with developmental plans' like, MGNREGA. Though, the revenue growth hasn't been exemplary but the company has witnessed good demand for decorative coating business across the country. However, inflation and falling INR has affected the material prices thus impacting margins. Industrial business including auto continued to face challenging conditions. Political events and macro economic uncertainty in some countries continued to affect international performance though South Asia has done well for the company in this Q."

"Alongside the modest EBIDTA growth, margins were under pressure and slipped ~169 bps YoY to 15.5% mainly on the back of spike in raw material cost. The raw material cost as percentage of revenue net of stock adjustments jumped up ~360 bps to ~59.8% in Q3FY'12. Thus Operating Profit was saw stagnancy at Rs 3,267 mn. The other income moved up ~18.8% to Rs 255 mn and led PBIDT up ~20.4% to Rs 3,882 mn. However, we don't expect margins to bottom out more in the coming Qs as inflation & INR, both are stabilizing."

"As we see, inflation has moderated to the lowest levels in 2Yrs & the benchmark wholesale-price index rose ~7.47%, citing belief that there are rooms for stock upside. At CMP, the stock trades at a P/E & P/BVPS of ~21.5x and ~7.6x respectively of FY'13E EPS & BVPS. We would still, wait to see the baloney effect of the economic/spending growth on discretion paints. Thereby, stays re-iterate the HOLD rating (target Rs 2,957), re-affirming on the earlie," says R K Global research report.

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To read the full report click on the attachment