Buy Asian Paints -Key takeaways from 3QFY11 results concall; Anand Rathi

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Asian Paints
Key takeaways from 3QFY11 results concall; Buy
Asian Paints management is confident of company’s the longterm
growth potential, but cautious about the near-term margin
outlook. It has increased prices to pass on the rise in raw
material costs. We maintain Buy on the stock, as we expect 22%
earnings CAGR over FY10-13e.

 Price hike of 3% in Dec ’10. To pass on the rise in raw material
costs, Asian Paints raised prices by 3% in Dec ’10. It indicated that
though it has already hiked prices by 11.4% (the highest singleyear
hike in the past 10 years) YTDFY11, it may look at further
hikes if raw material prices continue to move up.
 International subsidiaries facing more pressure. Management
stated that as market share of the company’s international
subsidiaries is lower than domestic, their pricing power is weaker
and, hence, increasing prices would be difficult. However, it
hinted that it might need to hike prices in some countries.
 Outlook. Management indicated the company’s long-term growth
potential is strong as there is a steady increase in surfaces for
painting owing to urbanization. It suggested that the repainting
cycle of houses has reduced and is boosting paint volumes.
 Valuation and risks. We value the stock at price target of `2,975,
based on target PE of 25x FY12e earnings. Our target PE is at
50% premium to the 12-month-forward Nifty PE. Key risks:
higher raw material prices and keener competition