CLSA downgrades Asian Paints, says it's 'expensive diamond'

CLSA has downgraded Asian Paints to high-conviction sell with a revised target of Rs 900 per share. According to the brokerage firm, Asian Paints is an 'expensive diamond’ with valuations ignoring imminent earning risks. CLSA says that recent 87 percent rally in crude oil prices from the recent lows poses a threat to the elevated gross margins the company has enjoyed recently. It adds Asian Paints’ volume growth has been reasonably volatile, with a 6-12 percent range in the past five years. It warns that a high base in FY16 could act as a dampener for FY17 volume numbers, though there is the possibility of higher contribution from product price hikes now that input costs are firming up.However, it is impressed that despite a weak macro, Asian Paints' volume growth accelerated and FY16 EBITDA margin rose to an all-time high. "Asian Paints actually showed much better pricing power in a deflation cycle, which was truly commendable," CLSA adds. Asian Paints posted 19.87 percent rise in consolidated net profit at Rs 408.75 crore with sales increase of  12.28 percent to Rs 3,919.23 crore in March quarter. The decorative business segment in India registered double digit volume growth in fourth quarter as lower raw material prices aided gross margins.Shares of Asian Paints slipped 2 percent intraday on Thursday. At 11:33 hrs Asian Paints was quoting at Rs 1,011.70, down Rs 7.25, or 0.71 percent on the BSE.