Hold Asian Paints; target of Rs 1240: ICICI Direct

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

ICICI Direct's research report on Asian Paints

Asian Paints (APL) witnessed 10.5% growth in net sales to Rs 4260.5 crore (I-direct estimate - Rs 4460.4 crore) mainly led by a mix of volume growth and price hikes. We believe volume growth has been to the tune of 5% during the quarter. Decorative paints demand remained muted for the company due to lower demand in south India that was impacted by extended monsoons and continued GST related disruptive environment, in general Operating margin improved 120 bps to 20.9% (I-direct estimate: 19.0%) due to 6.4% decline in overhead expenses as investment in renewable energy resulted in savings in power cost. Simultaneously, lower marketing expenses have also helped in margin expansion. We believe input tax credits in many overhead expenses also resulted in margin expansion Led by higher operating profit and 19.8% growth in other income, net profit increased 16.1% YoY to Rs 567.2 crore (vs. I-direct estimate: ~Rs 545.5 crore).

Outlook

We expect the company to record sales CAGR of 13.4% in FY17-20E led by estimated volume CAGR of 9.3%. We believe that being a market leader in the decorative paint segment, any price hike in raw material would be easily passed on to its customers. The company would maintain EBITDA margin at ~18% despite higher raw material prices. As a result, PAT is likely to record a CAGR of 13.8% for FY17-20E. Also, high cash on books could lead to an increase in dividend payout & improvement in RoEs. The stock is discounting all near term positives at the CMP. Hence we maintain HOLD recommendation with a target price of Rs 1240/share.

For all recommendations report, 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.

Read More