Target price: NA
- Asian Paints Ltd (APL) is India’s largest paint company and ranks among the top ten decorative coatings companies in the world. We expect the paints industry to grow at a CAGR of 12 to 14 per cent over the next three years, as against 9 per cent in the past few years.
- I also expect a 20 per cent growth in automotive paints, which accounts for 45 per cent of the demand for industrial paints. APL expects its revenues to grow at a CAGR of 19 per cent over FY06-09E.
- Its EBITDA margin is expected to increase from 13 per cent in FY06 to 14.7 per cent in FY09. We expect the EPS to grow at a CAGR of 26 per cent over FY06-09E and a 19 per cent growth in revenues.
- At the CMP, APL trades at 25.1x its FY07E earnings and 20.1x its FY08E earnings. The EV/EBITDA for the stock is 14.8x and 11.9x on FY07E and FY08E, respectively.
- I initiate coverage on the stock with a ‘Buy’ recommendation.
