Hold Asian Paints; target of Rs 1550: ICICI Direct

ICICI Direct recommended hold rating on Asian Paints with a target price of Rs 1550 in its research report dated July 25, 2019.

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July 25, 2019 / 15:19 IST

26 Aug, 2025 12:21

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ICICI Direct's research report on Asian Paints

Asian Paints’ (APL) strong Q1FY20 performance was led by solid growth in decorative paint volume (I-direct estimate: up 15% YoY). Volume growth was led by strategic dealer push, low base (due to GST led de-stocking by dealers) and intact demand from rural India. The impact of price hike was largely negated by a change in product mix (skewed towards economy products category like distemper & putty). The company has taken a price cut of ~0.4% in solvent based products. Despite this, gross margins improved marginally by 30 bps YoY (~200 bps QoQ). The major saving came in from fall in other expenses as percentage of sales (~87 bps YoY, ~300 bps QoQ). As a result, EBITDA margin increased 136 bps YoY to 22.5% (higher than our estimate of 18%). The strong operating performance helped negate the impact of higher non-operating cost like depreciation, interest in Q1FY20, resulting in 18% YoY PAT growth. We believe APL’s volume growth will remain higher at ~14% supported by strong demand from tier II, tier III cities, driving revenue at a CAGR of 15% in FY19-21E.

Outlook

We model revenue, earning CAGR of 16%, 23%, respectively, led by ~14% volume growth. We believe pressure on gross margin (due to change in product mix coupled with higher raw material cost) will ease, going forward, supported by a change in mix. However, at the current multiple, the stock offers limited upside. Hence, we change our rating from BUY to HOLD with a revised target price of Rs 1550/share.

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