[T.S.R:16761] Asian Paints-Difficult to Justify A Rs 30000 cr market cap; Sell

Asian Paints management is confident of company's the long-term 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.

n       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 single-year hike in the past 10 years) YTDFY11, it may look at further hikes if raw material prices continue to move up.

n       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.

n       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.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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