JM Financial has given a buy recommendation on Asian Paints with a target price of Rs 1,475.
Shares of Asian Paints closed at Rs 1,427.80. The brokerage has set a one-year horizon for the stock to hit the target price.
While the company's business did witness headwinds on input-costs during the year (crude price inflation, some mix-deterioration) plus increase in costs-base on account of the commissioning of two large greenfield facilities, it still managed to sustain its ROCE and ROE in FY19 at 21.3 per cent (post-tax) and 24.1 per cent against 21.6 per cent and 24.6 per cent in FY18, said the brokerage.
Reported ROIC, though, is down to 27.5 per cent in FY19 against 30.1 per cent in FY18 but excluding gestating assets, the same reflects a 130bps YoY improvement to 37.2 per cent in FY19.
"Asian Paints has traditionally been extremely efficient in managing its SG&A spends, in our view – overheads had grown at sub-3 per cent CAGR on per-unit-of-paints basis over FY05-12, and fell over FY15-18," said the brokerage.
The period of FY12-15, however,see sharp SG&A growth post the commissioning of the Khandala plant that upped the then existing capacity base by c.50 per cent.
Though FY19 did see similar magnitude of increase in installed capacities (up from 1.1mn KL p.a. to 1.7mn KL post MysuruRead More – Source