While Prabhudas Lilladher has been cautious on the stock, it continues to maintain its reduce rating and has a target price of Rs 700.
Amnish Aggarwal, senior vice president, Prabhudas Lilladher says while Asian Paints Q4 gross margins and overall profitability has improved, the near-term pressures is clearly evident on the stock.
The company's consolidated net profit grew 18.6 percent to Rs 341 crore in the quarter ended March 31, 2015 from Rs 287.4 crore in corresponding quarter last fiscal.
While the brokerage firm has been cautious on the stock it continues to maintain its reduce rating and has a target price of Rs 700.
Below is the transcript of Amnish Aggarwal’s interview with Sonia Shenoy & Reema Tendulkar on CNBC-TV18.
Sonia: How would approach Asian Paints now post its numbers?
A: Asian Paints is currently witnessing some sort of pressure due to the subdued demand across the country. Although their gross margins and overall profitability has improved because of the lower input cost mainly driven by the crude oil as raw materials and derivatives but the near-term pressures are very clearly visible.
Reema: We were just speaking to Ajay Bodke earlier and he has indicated that as a house you have lowered the target price on Asian Paints. With respect to valuations how do you read the valuations of Asian Paints and is there a case for a reduction in the multiple?
A: Asian Paints is very steady company if you look at the history of the company it has got a very good balance sheet, very strong brand leadership.
Sonia: What is your view on the stock and more importantly what is the target price now on Asian Paints?
A: We have a target price of Rs 700 and we have been cautious on this stock and their rating is reduced only from quite sometime. We are positive that some margin expansion is definitely going to happen but having said that Asian Paints is a very balanced company which usually keeps margins in a band and looks at higher volume growth and maximising its market share.
Sonia: But margin expansion will of course see the fall in raw material prices so that is given for the most companies. The worry really is what is happening on the topline there seems to be no growth at all so what volume growth are you forecasting for the first half of FY16?
A: First half I would say something like a mid single digit kind of a volume growth on should anticipate. Although I would say it is too early to take a final call. However the general perception which is prevailing the kind of impact which could be there from the unseasonal rains and consequent damage to the crops and rural income, major recovery seems unlikely before say second or third quarter.
Reema: What is your expectation on margins of Asian Paints?
A: We expect the margins to move up. In FY16 we are looking at something like 160 basis points increase in margins to 17.7 percent.
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