Hold Asian Paints; target of Rs 1154: Reliance Securities

Reliance Securitie's research report on Asian Paints

Asian Paints (APNT) reported strong set of numbers in 2QFY17 with consolidated revenues growing by 9.6% to Rs 37.2 bn and net profit increasing by 18.1% to Rs 4.9 bn. Notwithstanding the impact of extended monsoon which led to weaker consumer demand in certain key markets, volume growth of 12% yoy is impressive, in our view. We estimate APNT to post 13.3% & 20.2% CAGR in revenues and earnings through FY16-18E. Considering that the stock price has remained flat since 1QFY17 results and rolling forward of target price to 2QFY18E, we upgrade our recommendation on the stock to HOLD from REDUCE with a revised Target Price of Rs 1,154.

We expect volume growth momentum to improve, going forward, while APNT is likely to sustain current margin profile owing to superior branding and pricing power. We estimate APNT to post consolidated revenues of Rs 174.2 bn & Rs 199.3 bn and PAT of Rs 21.5 bn & Rs 24.9 bn in FY17E & FY18E, respectively. Though at CMP, the stock currently trades at expensive multiples of 43.9x FY18E earnings, we believe that APNT would continue to command premium owing to superior volume growth trajectory. We upgrade our recommendation on the stock to HOLD from REDUCE with revised Target Price of Rs 1,154 (from Rs 1,082 earlier) based on 40x Sep’18 EPS.