Accumulate Asian Paints; target of Rs 1513 : Dolat Capital

Dolat Capital's research report on Asian Paints

APL reported a strong double-digit volume growth of +20%, due to a shift in the festive season to Q3 in FY19, from Q2 in FY18. However, GM contracted, as it was adversely affected by higher price inventory of crude oil in the beginning of Q3. We believe that volume will continue to grow in double-digits, due to favorable volume base in rural market. In addition, ongoing government investments in rural infrastructure, and house construction in rural areas should benefit the company more than its peers (50% revenues attributed from rural). The price hikes implemented in October and December’18, should help boost revenues in the ensuing quarters. Further, the decline in crude oil prices and stable rupee are likely to increase margins in the near term. We are optimistic about the paint industry, considering an expected shift from the unorganised to organised sector in the long run. APL, a leader in the category, is likely to benefit the most from the shift. We revise our EPS estimates upward for FY19E and FY20E to ` 24.3 and ` 28.6, respectively, to factor in Q3 performance and favorable working conditions.

Outlook

We have introduced FY21E EPS estimates to ` 33.6. Maintain ACCUMULATE, with a revised TP of ` 1,513 (45x FY21 EPS.