X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Would you buy the world's most expensive paint stock? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 27, 2012

    Would you buy the world's most expensive paint stock?

    Investing in stocks is about getting two things right.

    The first is to identify a company that has proactive management with good governance, sound fundamentals, and a clear and robust business model. In the long term this is the best recipe for maximizing returns.

    The second is to get the valuations right. But, what is the "right" valuation? There is no one answer to this question. As beauty lies in the eyes of the beholder price lies in the eyes of the investor!

    But no matter what your approach to valuation may be, would you really buy the world's most expensive stock in its category?

    The stock we are talking about is Asian Paints.

    In May 2012, a story in a leading business daily said that Asian Paint's stock was one of the most expensive paint stocks, not just in India ... but in the world!

    Asian Paints is currently trading at a price-to-equity PE multiple of 37 times its trailing 12 month (TTM) earnings (EPS).

    Does the company's fundamental performance justify this high valuation?

    Over the past 5 years, the company has seen dynamic growth in both its revenues as well as earnings. On a consolidated basis, revenues grew at a compounded annual growth rate (CAGR) of 21% while net profits grew at a CAGR of 29%.

    At the same time it was able to maintain healthy margins and return ratios as well. FY12 operating and net margins were 14.9% and 9.4% respectively; while Return on Equity and Return on Capital employed were 41.4% and 54.7% respectively. All this represented solid results.

    But how does Asian Paints stack up against the peers?

    Asian Paints versus other Indian Paint Companies - Five Year Analysis
      Akzo Nobel India Ltd Kansai Nerolac Berger Paints Shalimar Paints Asian Paints
    Sales growth (5 yr CAGR) 4% 16% 19% 14% 21%
    Net Profit growth (5 yr CAGR) -15% 15% 15% 25% 29%
    Operating Margin (5 yr avg) 15% 13% 10% 7% 15%
    Net Margin (5 yr avg) 14% 8% 6% 2% 10%
    Return on Equity (5 yr avg) 18% 21% 24% 23% 47%
    Return on Assets (5 yr avg) 17% 19% 15% 8% 38%
    Return on Capital Employed (5 yr avg) 23% 27% 25% 22% 56%
    TTM PE 16.0 22.7 27.3 14.5 37.0
    Source: ACE Equity

    Clearly, Asian Paints has delivered superior returns relative to its competitors. And with its PE of 37, it also commands a premium in terms of valuation.

    So we know that Asian Paints has strong fundamentals and financials, and its achievements have been much better than its competitors. But does the PE of 37 reflect the "right" valuation for Asian Paints?

    Source: Livemint

    Asian Paints' PE of 37 is close to its historic high of August 2005 when the Indian and world economy was stronger. Valuations of other companies in the Paint industry range between 15 and 23, and mirror the average of companies in the economy.

    We believe that Asian Paints has demonstrated good governance, sound fundamentals and a solid business model. And its results reflect these parameters.

    However, we wonder if the "lustre colour" that paints its valuation is too shiny. We suggest a "wait and watch" approach to see if Asian Paints performance is indeed as rich and sustainable as the quality of the paints it promises.

      Devanshu Sampat (Research Analyst) has a degree in commerce and nearly 5 years of experience in equity research. He draws inspiration from successful value investors across the globe and constantly endeavours to refine his own unique stock picking approach. While a firm advocate of the principles of value investing, he believes in adapting a versatile investing strategy in response to varying market conditions. Devanshu contributes to our Megatrend investing service The India Letter.

     

     

    Equitymaster requests your view! Post a comment on "Would you buy the world's most expensive paint stock?". Click here!

    3 Responses to "Would you buy the world's most expensive paint stock?"

    dharmendra khatri

    Jan 31, 2014

    yes, i had it with long term bet, i think that what it looks to be expensive but in f.y. 2010 it has surprisingly doubled it eps to 87 and PE would be half of what it had been 2009 (if buy out), when macro changes it will provide benefit of it topline growth. it has track record of delevering whooping wealth createn since ipo at just rs 13 per share to present day 473 price and 17420 shares bonus per share.

    Like 

    Girish

    Jul 2, 2012

    I have invested in Asian Paints about 10 years back at around Rs. 300/-. I may not buy more but will surely hold on the existing investments.

    Like (2)

    sethu

    Jun 29, 2012

    invested from its IPO in mid 1970s.have been adding now and then.Most of the time it looks like over valued but investors sufficiently got rewarded.At 3000 level people were making noise that it was over valued and sold not long ago;Now it is hovering around 4000;Now also it looks over valued to many.But market is giving such valuation.the management is honest and trust worthy.not like many other indian companies including Tata groups.On this factor coupled with performance market gives such a valuation to this stock.That is the beauty of this scrip.So it is ones call..one can go on grumbling that it is overvalued and sit on sidelines or just go ahead and buy with Long term.

    Like (3)
      
    Equitymaster requests your view! Post a comment on "Would you buy the world's most expensive paint stock?". Click here!
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    5 Steps To Become Financially Independent (Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 16, 2017 (Close)

    MARKET STATS