UPDATES
Asian Paints (BUY): Strong volume growth in 2Q; reiterate TOP BUY
Asian Paints delivered another strong quarter with 10% YoY revenue growth (13% YoY volume growth) and 17% YoY EPS growth. Current high valuations of 43x vs 35x two years back are justified by: a) resilient repainting demand in a weak macro environment with the industry likely to deliver volume CAGR of ~12% over the next decade; b) greater pricing power vs historical levels provides sustainability to current higher levels of EBITDA margins (~140bps higher than 1HFY16); and c) ability to successfully drive the next phase of evolution towards providing value-added services in the broader home improvement category. We expect 18%/23% revenue/EPS CAGR over FY16-FY20 amid 15%/12% decorative paint industry revenue CAGR over FY15-25/FY25-35. We have reduced our revenue and earnings estimates for FY17/18 by 1-2% following the 2QFY17 results. Our DCF-based fair value of Rs1,270 (11% upside) implies 43x FY18E P/E. (Rakshit Ranjan, CFA, +91 22 3043 3201)
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