Reduce Asian Paints, target price Rs 1800: HDFC Securities

Asian Paints Ltd., incorporated in the year 1945, is a Large Cap company (having a market cap of Rs 191446.29 Crore) operating in Building Materials sector.

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Promoters held 59.50 per cent stake in the company as of June 30, 2020, while FIIs held 21.95 per cent, DIIs 8.27 per cent and public and others 9.17 per cent.
HDFC Securities has given a reduce rating to Asian Paints with a target price of Rs 1800. The share price moved up by 0.60 per cent from its previous close of Rs 1981.95. The stock’s last traded price is Rs 1993.80.

Asian Paints Ltd., incorporated in the year 1945, is a Large Cap company (having a market cap of Rs 191446.29 Crore) operating in Building Materials sector.

Financials
For the quarter ended 30-06-2020, the company reported a Consolidated sales of Rs 2922.66 Crore, down 36.95 % from last quarter Sales of Rs 4635.59 Crore and down 43.04 % from last year same quarter Sales of Rs 5130.63 Crore. The Company reported net profit after tax of Rs 233.89 Crore in latest quarter.

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Investment Rationale
Asian Paints' dominance remains untouched given its strong distribution/supply chain moat and better-aligned product portfolio. However, at 55x Sept-22 P/E, pluses seem more than priced in. It assigns a DCF-based TP of Rs. 1,800/sh (implying 50x Sep-22 P/E). Implied assumptions: (1) 10-year APNT revenue CAGR: 12%, (2) FY20-41 FCFF CAGR: 12.7%, (3) WACC: 10.5%, (4) Terminal growth: 6%.

Promoter/FII Holdings
Promoters held 59.50 per cent stake in the company as of June 30, 2020, while FIIs held 21.95 per cent, DIIs 8.27 per cent and public and others 9.17 per cent.
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