Buy Asian Paints; target of Rs 951: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's report on Asian Paints> Asian Paints (APL) recorded lower-than-expected sales growth of ~4% YoY driven by ~8-9% YoY rise in volume growth. The decline in realisation by ~4% was attributable to the price cut coupled with higher proportion of lower end products in sales volume> Titanium di-oxide prices declined ~8% YoY leading to saving in raw material cost to the tune of 260 bps YoY. The savings were partially offset by ~80 bps YoY rise in other expenses. As a result, the operating margin improved ~167 bps YoY. In addition, other income increased 20% YoY to Rs 57.5 crore mainly due to higher treasury income, which helped PAT to grow 15% YoY> We have modelled ~13% revenue CAGR in FY15-17E largely supported by ~11% volume CAGR and limited realisation growth largely on the back of a change in the product mix Strong fundamentals, revival in economy to drive valuationWe have modelled moderate revenue CAGR of 13% for FY15-17E led by volume growth of ~11% during the same period. We believe the company will pass on some benefits to customers considering the benign raw material prices. We estimate PAT CAGR of ~27% for FY15-17E due to an expansion in EBITDA margin by 307 bps in FY15-17E. Historically, during FY10, the company witnessed a sharp increase in gross margin on account of lower crude prices. We believe crude oil prices will remain at lower levels in the medium term, which will benefit the market leader as it is least likely to pass on the entire benefit of lower raw material prices. Also, high cash on the books could lead to an increase in dividend payout and improvement in RoEs. We reiterate our BUY rating on the stock with a target price of Rs 951/share (40x its FY17E earnings), says ICICI Direct research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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