ICICI Direct is bullish on Asian Paints has recommended buy rating on the stock with a target price of Rs 1525 in its research report dated May 10, 2019.
ICICI Direct's research report on Asian Paints
Asian Paints’ (APL) profitability during Q4FY19 was largely hit by a change in product mix. The company reported volume growth of ~11% (I-direct estimate: 13%) largely driven by economy product range such as Distemper and Putty. Though the company took a price hike of ~6% in FY19, the change in product mix restricted value growth. As a result, gross margin declined ~170 bps YoY. In addition to this, higher fixed cost associated with new plants weigh on EBITDA margin, which declined ~233 bps YoY at 16.4%. Flattish PAT is attributable to higher depreciation and lower EBITDA margin during Q4FY19. We believe APL’s volume growth will remain higher at ~13% supported by strong demand from tier II and tier III cities, driving revenue at a CAGR of 15% in FY19-21E.
Outlook
We model revenue, earning CAGR of 15%, 17%, respectively, led by ~14% volume growth. We believe pressure on gross margin (due to change in product mix coupled and higher raw material cost) will ease, going forward, supported by price hikes. We maintain our BUY rating on the stock with a revised target price of Rs 1535/share.
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