Accumulate Asian Paints; target of Rs 1163: Dolat Capital

Dolat Capital's research report on Asian Paints

APL continues to maintain high volume growth trajectory in 2QFY17. Our analysis suggest that the company has reported 12-13% volume growth - commendable considering slowdown in most of the other consumer categories. We remain optimistic about the domestic paints industry considering (1) better monsoon (2) changing macros (3) favorable base and (4) expected pent up demand in the category. APL being a leader in the market (53% MS), is most likely to benefit from the growing demand. However, peaking out of margins would restrict profitability. Maintain Accumulate with TP of Rs 1,163 (38x FY19 EPS).

Though GM expanded YoY in 2QFY17, it contracted significantly by 270bps QoQ - raises concerns over the margins in the ensuing quarters. We believe that the last leg of margin expansion is over and the company would have to battle against a very unfavorable base going ahead.