November 01, 2016 / 17:26 IST
ICICI Direct's research report on Asian Paints
Consolidated sales growth of 10% (marginally below consensus estimate of 11%) was driven by 12% volume growth in India decoratives. Input costs increased 250 bps QoQ; hence, EBITDA/ PAT growth at 17%/18% was much below consensus estimate of 25%/26% growth. Management remained non-committal on volume growth improvement but did hint at margin pressures.
Downgrade to SELL with a revised TP of Rs 980 (34x fwd P/E) vs. Rs 950 earlier, as we do not see marked improvement in volume growth, which coupled with margin risks (FY17 margin is 300bps higher than CY12- 16 mean) and peak valuations (trades at FY18 P/E of 45x) make even a 10-12% CAGR return over the next 2-3 years improbable. Moderate EBITDA growth in H2FY17 could be a near-term trigger.
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