Prabhudas Lilladher's research report on Asian Paints
APNT reported high single‐digit volume growth in domestic decorative business in Q2FY18 as post GST recovery and festival demand was visible only from September 2017. Gross margins in Q2 declined by 310bps YoY due to carry‐over input cost inventory till August end, despite some softening in Q2. We expect H2FY18 growth to accelerate, given low base due to demonetisation in Q3FY17 and expected pickup in demand. We expect mid‐teens volume growth in the decorative paints for the coming 5‐10 years led by rising consumerism, reduced painting cycles and increased application in small towns and rural India.
Outlook
We expect premium valuations to sustain and retain “Accumulate” with target price of Rs1,239 (Rs1200 earlier). We expect returns to be back‐ended, given all‐time high valuations.
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