Sell Asian Paints; target of Rs 3340: Emkay

Emkay Global Financial Services is bearish on Asian Paints and has recommended sell rating on the stock with a target of Rs 3340 in its October 26, 2012 research report.

“Asian Paints, in Q2FY13, Asian Paints registered volume growth of 5-7% in domestic decorative paint business (adjusting for industrial paints business); delivery was above expectations. This is still below the industry norm of 1.8-2.0x GDP or volume growth expectation of 12% in FY13E. Despite, higher than expected volume growth we do not expect earnings upgrade as the company will need to deliver steep volume run-rate (16-18%) in H2FY13E to meet estimated revenue figure (the company has reported weak volume growth in H1FY13).”

“Asian Paints Q2FY13 consolidated performance meets expectation (1) revenue growth of 16.8% yoy to Rs26.4 bn (2) Ebidta growth of 16.1% yoy to Rs3.8 bn and (3) APAT growth of 14.6% yoy to Rs2.4 bn. Our expectation for revenue and APAT stood at Rs25.5 bn and Rs2.5 bn respectively. Performance had single digit volume growth and weak product mix. Two successive quarters for lower then 1.8-2.0X GDP growth at 2% yoy and 7% yoy – risk to earnings forecasts has increased. We strongly believe that genuine demand slowdown is sole reason for deceleration of volume growth in Indian decorative paints business. Infact, continuation of this trend increases risk to earnings-earnings disappointments in our opinion can accentuate in ensuing quarters.”

“Despite, better then expected volume growth we do not expect earning upgrade as the company will need to deliver steep volume run-rate (18-20%) in H2FY13E to meet estimated revenue figure. Hence, forecasts itself are on a optimistic side. We believe next quarter will mark the beginning of de-rating of Asian Paints as 1) Q3 being the festive quarter, disappointment could set-in earnings downgrades 2) implied run-rate for volumes remains very steep at 18-20% and 3) we reiterate challenging times for discretionary spends in India. We retain earning estimates for FY13E and FY14E at Rs121.6/Share and Rs140.0/Sharewould revise in subsequent quarter. We retain our negative bias and maintain top avoid in the sector. We have sell rating with price target of Rs3340/Share,” says Emkay Global Financial services research report.

Institutional holding more than 40% in Indian cos

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