Motilal Oswal neutral on Asian Paints

Motilal Oswal has maintained a 'Neutral' rating on Asian Paints with a target price of Rs 900, in its research report dated March 03, 2015.

August 06, 2015 / 16:39 IST

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Motilal Oswal's research report on Asian Paints

"APNT’s management is optimistic on the medium term Decorative paints demand in India and is looking at double digit volume growth. Weak sentiments impacted demand in 3QFY15. While rural growth is still higher versus urban, the gap is narrowing. As per management, expectations of a price cut would not have resulted in any meaningful change in inventory levels in trade. We note that APNT has taken 2% price cut effective Mar 1, 2015 in its Decorative paints portfolio. Our channel checks suggest Decorative paint demand has improved QoQ."

"APNT’s presence in the Home Improvement segment, via the acquisition of Sleek and Ess Ess, is gradually expanding. Both these brands were regional in nature, with predominant presence in Western and Southern geographies. APNT is planning to take these brands national and bring the service levels to its standards. Some of company’s dealers already retail home improvement products, and management is bringing the acquired brands into APNT’s network."

Valuation and view: "We estimate 31% EPS CAGR over FY15E-17E, with underlying gross and EBITDA margin expansion of 420bp and 390bp, respectively. While improving macros and consumer sentiment should drive volume growth going ahead, valuations at 39.2x FY16E and 32x FY17E discount the positives, in our view. Maintain Neutral with a target price of INR900 (35x FY17E, three-year average P/E)", says Motilal Oswal research report.

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