Comments
Geojit Financial
Asian Paints (Reduce)
CMP: ₹1,332.9
Target: ₹1,269
Asian Paints 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. The company’s business segments are Paints and Home Improvement. The Home Improvement segment includes its bath fittings business. Its geographical segments are domestic and international operations.
Asian paints’ (APNT), is the market leader in the Indian paint manufacturing industry with a market share of about 53 per cent. Q4FY19 revenue grew by 12 per cent year-on-year (below estimate) aided by double digit volume growth about 10 per cent. However, inferior product mix, trade discounts and higher employee cost led to decline in EBITDA margin by 230bps year-on-year to 16.4 per cent.
While higher depreciation (42 per cent year-on-year) and interest cost (68 per cent year-on-year) dragged earnings to a de-growth of –2 per cent year-on-year.
Volume growth is likely to stabilise at double digit but inferior mix and increase in overhead cost on account of commissioning of new plant will impact margins.
We reduce FY20E/21E earnings estimate by 10 per cent/8 per cent, respectively. However high valuation and weak demand outlook will be a near term challenge. We therefore revise our rating to ‘Reduce’ and value at a P/E of 40x on FY21E EPS.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.