Paint stocks rise after Asian Paints posts good Q4 results

Shares of paint companies were trading higher by up to 6% on the BSE in intra-day trade after Asian Paints said its decorative paint business reported a double digit volume growth in March 2018 quarter (Q4FY18) with improved demand conditions.

Asian Paints has surged 6% to Rs 1,287, surpassed its previous high of Rs 1,261 touched on September 14, 2017 on the BSE in intra-day trade.

Berger Paints India too rallied 6% to Rs 268, followed by Shalimar Paints (4% at Rs 144), Kansai Nerolac Paints (4% at Rs 530) and Akzo Nobel India (1% at Rs 1,951) on the BSE. On comparison, the S&P BSE Sensex was up 0.34% or 120 points at 35,366 at 12:53 pm.

Asian Paints expects the Indian economy to fare better in FY19, given projections of pickup in GDP growth rates and benefit to rural demand from normal monsoon forecast. It believes that faster economic growth should portend a pickup in growth rates across the decorative segment.

“Asian Paints Q4 performance and bullish outlook shared in the analyst meet raise confidence in our 17% FY18-20 EPS Cagr estimate (marginal 1% upgrade). The stock trades at 43x FY20ii EPS; we maintain BUY with target price of Rs 1,400,” analysts at IIFL Institutional Equities said in result update.

Going ahead, Analysts at Antique Stock Broking expects a recovery in sales growth from FY19e. This coupled with the cost control initiatives will aid margins in a scenario of input cost inflation.

“We remain positive on scalability in the business during the next 3-5 years. We believe that a rising exposure to emulsions during the next 5 years will reduce the volatility in margins due to fluctuation in crude oil prices. We believe that the company will witness accelerated earnings growth of 21% YoY led by better volume growth and cost control initiatives,” the brokerage firm said in result review.

Improvement in volume growth and margins (driven by pricing and cost savings) offers better earnings visibility. While growth is still marginally below peers, indicating market share loss, margins are expected to be steady despite inflationary pressures, said analysts at Emkay Global Financial Services.

We expect revenue/earnings CAGR of 15%/18% over FY18-20E. Current valuation at 43x FY20E EPS offers limited upside. We maintain HOLD with a revised Target Price of Rs 1,260 on June’20E EPS, the brokerage firm said in result update.


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