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JMFL
Asian Paints (Buy)
CMP: ₹1,427.8
Target: ₹1,475
Asian Paints is a paint company. The company is engaged in the business of manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.
Achieving a 50 per cent increase in capacity in 2-2.5 years’ time is by itself no mean feat; doing so while keeping ROCE/ROE (return on capital employed/return on equity) almost intact is quite a different achievement altogether, in our view. Asian Paints’ post-tax ROCE of 21.3 per cent is nearly the same as prior year’s 21.6 per cent in FY19 despite the commissioning of two large greenfield factories that added 51 per cent to its capacity-base that now stands at 1.7 million KL a year versus 1.1 million KL.
The company’s net-cash balance still rose by ₹330 crore in FY19, though the same is ₹230 crore lower cf. FY16-end level when activities on the two new plants commenced. FCFF grew 53 per cent in FY19 — helped more by lower capex spends, though, as growth in cashf low from operations was just 4.8 per cent due to increased working capital investments made during the year.
We continue to see Asian Paints as a compelling long-term investment theme that quite justifies the premium that it commands.
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