Credit Suisse cuts Asian Paints target on Q4 margin concern

Moneycontrol Bureau

Credit Suisse has maintained outperform rating on Asian Paints but slashed target price by 4 percent per share as demand recovery and margin gain quantum is likely to be lower in fourth quarter of FY15. The brokerage is cautious that fourth quarter volume recovery is not as strong as expected, which implies likely mid-single digit volume growth.

“Paint dealers were anticipating a price cut over the past few months, which has now materialised in the form of 2 percent in price cut taken by Asian Paints. However, there is no material elasticity in demand,” it says in a note.

However, Credit Suisse is hopeful that Asian Paints will gain from falling input costs in FY16, as 50 percent of the input basket is crude linked and 20 percent is titanium dioxide. There may be, the brokerage adds, a time lag in the gain from falling crude prices, as derivative prices are falling with a lag, excluding MTO and monomer prices, which are falling by a smaller amount.

The brokerages expects volume growth to recover in FY16 to double-digit levels, and build in 3-5 percent  price cuts, which would still leave room for 500 basis points expansion in EBITDA margins.

At 12:54 hrs Asian Paints was quoting at Rs 808.55, down Rs 5.60, or 0.69 percent on the BSE.

(Posted by Nasrin Sultana)