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Hold Asian Paints, target price Rs 1,700: Emkay

The company has outperformed most consumer peers given the benefit of low crude prices.

ETMarkets.com|
Last Updated: Mar 25, 2020, 11.30 AM IST
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Hold


Emkay has given a “hold” rating on Asian Paints with a target price of Rs 1,700 over 12 months. Paint companies are likely to be more impacted than other consumer staple names due to lockdowns and restrictions, and postponement in painting activity on increased consumer cautiousness. The company, with stronger salience in top-20 cities, is likely to be more affected.

Expectations of a bump-up in demand post the crisis may not hold, while reduced discretionary spending may impact demand going ahead. Besides the festive quarter, the first quarter is also a seasonally strong one. There will be a bigger impact on FY21 forecasts.

The company’s share price moved down by -0.29 per cent from its previous close of Rs 1524.85. The stock last traded at Rs 1519.10. Incorporated in 1945, Asian Paints Ltd is a largecap company with a market cap of Rs 146301.64 crore.

Investment Rationale

The company has outperformed most consumer peers given the benefit of low crude prices. The stock has corrected only ~20 per cent vs. 15-30 per cent across consumer staples. At 38 times FY22E EPS, valuations look relatively unattractive given the near-term uncertainty. Maintain Hold/underweight in EAP with a revised target price of Rs1,700, now valuing it at 42 times FY22E EPS.
Given the near-term disruption in economic activity, earnings visibility stands reduced as lower sales may offset the benefits of low crude prices.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 5420.28 crore, up 7.32 per cent from last quarter sales of Rs 5050.66 crore and up 2.39 per cent from last year same quarter sales of Rs 5293.99 crore. The company reported net profit after tax of Rs 760.50 crore in the latest quarter.
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