July 29, 2016 / 13:36 IST
Religare's research report on Asian Paints
APNT’s Q1FY17 results were largely in line with RCMLe with consolidated net sales/EBITDA/adj. PAT growing 10%/21%/19% YoY. Gross margins expanded 450bps – a multi-year high – and EBITDA margins were up 180bps YoY. We think the stock prices in the positive aspects of APNT’s business model, but not the risks of lower margins and investments in new initiatives. Valuations at 39x Sept’18E EPS make the risk-reward unfavourable.
Though APNT results were in line with our estimates (below consensus) we adjust our numbers upwards by 3%-4% in FY17 to factor in the benign input costs. We believe the positive aspects of APNT’s business model are priced in, but risks of lower margins and investments in new initiatives are not. Lofty valuations at 39x Sept’18E EPS restrict us to turn constructive at current levels. Maintain SELL.
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