Buy Asian Paints; target of Rs 1090: ICICI Direct

ICICI Direct's research report on Asian Paints

APL is the industry leader in the decorative paint segment with 53% market share and a dealer network of over 40,000 across India. It derives 81% of its topline from the decorative segment while the rest comes from the industrial segment. We believe consumer durable companies will be key beneficiaries of the government’s key reforms like implementation of GST and pay hike.

We introduce FY19 estimates with sales CAGR of 10.3% in FY16-19E led by volume CAGR of 9%. We believe, being market leader in the decorative paint segment, any price hike in the raw material would be easily passed on to its customers. The company would maintain EBITDA margin at 17% despite higher raw material prices. As a result, PAT is likely to record CAGR of 13% for FY16-19E. Also, high cash on the books could lead to an increase in dividend payout and improvement in RoEs. We roll over valuation on FY19E and value the stock at 40x FY19E earnings. We reiterate our BUY recommendation on the stock with a revised target price of Rs 1090/share.