Asian Paints quarterly results: High valuation of stock justified

The performance of paints maker - Asian Paints in the quarter to March was its best in the last five quarters. The company reported strong revenues with volume-driven growth in a discretionary consumption category such as paints.

This is impressive considering high commodity inflation, moderation in economic growth and ebbing consumer confidence. The strong show was possible because of the company’s strong brand equity and its ability to increase prices thanks to its market leadership.

The company posted a 29% growth in its consolidated revenues, 30% increase in operating profit and maintenance of its operating profit. This was despite having no respite in input costs.

Raw material prices as a proportion of consolidated revenues rose to 60% in the March quarter against 58.7% a year ago. Despite better availability of titanium dioxide, its price continued to remain high during the quarter.

High valuation is one of the few key concerns for analysts. The Asian Paints’ stock is trading at a consolidated price to earnings multiple of 35.1. These are premium valuations for a FMCG stock. However, considering that most FMCG stocks are trading at high valuations, this valuation despite being relatively high seem to be justified after the latest numbers.