Hold Asian Paints; target of Rs 4085: R K Global

R K Global has recommended hold rating on Asian Paints with a target of Rs 4085 in its October 29, 2012 research report.

“Asian Paints, India’s largest paint company and ranked among the top ten decorative coatings companies in the world posted a ~16% YoY growth in revenue to 21,463 mn (~4% QoQ), as the decorative market continued to perform well and with better clarity on monsoon and higher spending in rural economy due to elections. The company’s profit grew by ~5% to Rs2,239 mn.  On consolidated basis, net sales grew by ~17% and EBIT grew by ~14%. EBIT margin stood at ~14% compared toRs14.3% YoY largely due to slight pressure in industrial segment and late pickup of premium products in decorative segment. Management expects margin to come back in H2 given the festive demand and clarity of monsoon.”

“H1FY'13 cumulative price increases stood at ~5.3%. Depending upon raw material price action, the management will take further call on the prices. The outlook continued to be encouraging, the auto and non-auto industrial paint segment continue to be under pressure due to weak industrial outlook and lack of policy action at ground level by the government. On margin front also the pressure towards industrial side continued as volatility in currency movements and on raw material side could not be passed on to the industry. Also on the demand side, domestically, generally election motivated spending helps higher sale of company's products in Rural India. Recent reform announcements made by the government have yet to be seen in terms of actions at ground level. Also Gujarat election results will also be vital in terms of setting the stage for National election.”

“Strong run being offset by consolidation, so near-term impact unlikely, moreover, as the expansion at Khandala is on track and the Phase-1 capacity of 3,00,000 KL will be commercial from Q3-Q4 FY'13E. Thus we don’t see very strong upsides till that happens. The stock trades at a P/E of ~32.7x and P/BV of ~10.8x of FY’13E EPS and BVPS. We re-iterate hold, revising our earlier TP to Rs4,085 (a potential ~4.1% from CMP). Our TP is being arrived at using a P/E of ~34.0x and P/BV of ~11.3x of FY’13E EPS and BVPS of Rs120 and Rs363 respectively,” says R K Global research report.

Non-Institutions holding more than 90% in Indian cos

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