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Equirus Securities
Asian Paints (Reduce)
CMP: ₹1,132.30
Target: ₹1,059
Since its foundation in 1942, Asian Paints has come a long way to become India’s leading and Asia’s fourth largest paint company, with a turnover of ₹15,850 crore. Asian Paints operate in 19 countries and have 26 paint manufacturing facilities in the world, servicing consumers in over 65 countries.
Asian Paints reported revenue growth of 8 per cent y-o-y, in-line with EE on consolidated basis with standalone sales increasing by 9 per cent y-o-y with strong volume growth (low double digit volume growth in decorative paints). Gross margins contracted by 151/16 bps on y-o-y/q-o-q basis in 4QFY17. Absolute EBIDTA for the quarter stood at ₹710 crore, 2 per cent higher on y-o-y basis and 4 per cent below EE. Although APNT is a company with proven track record, earnings growth is likely to slow down as compared to the last 2-3 years.
Asian Paints valuations currently are very rich with the stock currently trading at about 44x our FY19 estimated EPS of ₹26.4. Hence we maintain our ‘reduce’ rating on the stock with September 2018 TP of ₹1,059 (previously June 2018 TP of ₹1,017) and await better entry point. At our TP the stock would trade at 43x its TTM EPS of ₹24.6.
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