Asian Paints Ltd

Money Times - - Stock Watch -

(BSE Code: 500820) (CMP: Rs.1261.50) (FV: Re.1) (TGT: Rs.1400+)

Es­tab­lished in 1942, Mum­bai based Asian Paints Ltd (APL) to­gether with its sub­sidiaries man­u­fac­tures and sells paints and coat­ings for dec­o­ra­tive and in­dus­trial use. It op­er­ates pri­mar­ily into four seg­ments: Dec­o­ra­tive Paints; In­ter­na­tional Paints; In­dus­trial Paints & Coat­ings; and Home & Im­prove­ment. The dec­o­ra­tive seg­ment con­trib­utes ~76% to its topline fol­lowed by the in­ter­na­tional busi­ness at 12%, in­dus­trial at 9% and home and im­prove­ment at 2%. APL pro­vides in­te­rior and ex­te­rior wall fin­ishes, enam­els, wood and me­tal fin­ishes as well as wall paint­ing tools such as brushes, rollers, ac­cel­er­a­tors and mech­a­nized tools. It also of­fers wall cov­er­ing and stick­ers, wa­ter­proof­ing so­lu­tions and ad­he­sives. In ad­di­tion, it pro­vides sur­fac­ing prepa­ra­tions, or­ganic com­pos­ite sol­vents and thin­ners, or­ganic and in­or­ganic chem­i­cal com­pounds, ph­thalic an­hy­dride and pen­taery­thri­tol, which are used to man­u­fac­ture paint. It also of­fers kitchen com­po­nents such as hard­ware, shut­ters/cab­i­nets, ac­ces­sories, ap­pli­ances and bath-fit­ting prod­ucts. It dis­trib­utes its prod­ucts through a net­work of dis­trib­u­tors, deal­ers and re­tail stores. APL is a mar­ket leader with a pro­fes­sional man­age­ment, his­tory of in­no­va­tive strate­gies in mar­ket­ing, ef­fi­cient man­u­fac­tur­ing and lo­gis­tics in place and pru­dent fi­nan­cial man­age­ment. Dur­ing Q1FY19, it re­ported 15% higher rev­enues of Rs.43903 mil­lion mainly due to growth in its dec­o­ra­tive busi­ness led by both vol­ume and 1.9% price hike ef­fected in May 2018. Its op­er­at­ing mar­gin stood at 19.9% at Rs.8744 mil­lion v/s Rs.6654 mil­lion in Q1FY18. PAT mar­gin stood at 12.8% at Rs.6051 mil­lion v/s Rs.4127 mil­lion in Q1FY18. The im­prove­ment in mar­gins was partly due to the im­pact of GST in the pre­vi­ous year’s quar­ter and bet­ter op­er­at­ing ef­fi­ciency.

The man­age­ment has in­di­cated that it may con­duct a fur­ther price hike due to in­crease in raw ma­te­rial costs ow­ing to ris­ing crude oil prices. How­ever, it also de­nied any im­me­di­ate hike as the gov­ern­ment has low­ered the GST rate for the

in­dus­try from 28% to 18%.

In terms of growth, we ex­pect the In­dian paints in­dus­try to grow at ~8-12% in the next few years as de­mand fac­tors re­main strong. Con­cerns re­main in terms of raw ma­te­rial costs mainly on ac­count of ris­ing crude oil prices, which we be­lieve is grad­u­ally de­clin­ing due to higher de­mand for wa­ter-based paints go­ing ahead.

Tech­ni­cal Out­look: The stock looks good on the daily chart for medium-term in­vest­ment. It has taken sup­port of its 100 DMA level placed at Rs.1170 on the weekly chart. It has taken sup­port of a strong up­trend line. The stock trades be­low all im­por­tant mov­ing av­er­ages like the 200 DMA level on the daily chart. Start ac­cu­mu­lat­ing at this level of Rs.1261.5 and on dips to Rs.1216 for medium-to-long term in­vest­ment and a pos­si­ble price tar­get of Rs.1400+ in the next 12 months.

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