Accumulate Asian Paints; target of Rs 747: P Lilladher

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Prabhudas Lilladher's report on Asian Paints

"APNT is one of the biggest beneficiaries of low crude prices as crude linked raw materials (including packaging) are 57% of input costs. We expect strong margin expansion for the coming couple of quarters, however extrapolating the same to FY17 looks too premature, given uncertainty regarding global crude oil prices. APNT had cut prices by 10% in 2009 and margin expansion in that cycle was led by excise duty reduction and acceleration in volume growth. We expect price cuts to materialise from 4QFY15. Our sensitivity analysis suggests that there is high probability of 40% EPS growth in FY16 whereas FY17 growth would be lower than current estimates due to higher margin in base quarter. We would wait for management commentary on product pricing and trend in crude oil prices before changing our estimates. We believe APNT is in a sweet spot due to huge growth opportunity in decorative paints given strong brand, distribution and innovations. We currently estimate 24% PAT CAGR over FY14‐17 and 21% PAT CAGR over FY15‐17. Retain Accumulate with a target price of Rs 747", says Prabhudas Lilladher research report.

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