Asian Paints Ltd
(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.