Buy Asian Paints; target of Rs 2050: ICICI Direct
ICICI Direct’s research report on Asian Paints
Asian Paints reported strong volume growth in the decorative segment (I-direct estimate: ~14% YoY) in Q2FY20, higher than our estimate of 12%. Volume growth was largely driven by demand staying intact in tier II, tier III cities with the early onset of the festive season. Change in product mix (skewed towards economy products category like distemper & putty) and a cumulative price cut of ~0.8% in solvent based products weigh on overall realisation in Q2FY20. The management guided for a possible pick-up in demand for premium category products in coming quarters. We believe this would help drive realisation growth, going forward. On the margin front, higher gross margin was partly offset by a surge in advertisement expenses and other expenses. Finally, PBT increased 13% YoY while sharp growth in PAT was largely on account of transition to new corporate tax rate structure.
We believe despite extended monsoons, the company has recorded strong volume growth in Q2FY20 with margin expansion. We revise our earnings estimate up by 6% and 4% for FY20E and FY21E, respectively. We maintain our BUY rating on the stock with a revised target price of Rs 2050/share.
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