Tuesday, December 27, 2016

Can we Invest in Asian Paints’ Share After Recent Steep Price Correction?

Asian Paints' Company Logo

Dear Friend!
I had recently prepared and posted a brief investment research report of Asian Paints on this blog.
I find that indeed Asian Paints is very good company. However the market has made it undue preference and made it very, very expensive to invest in.
Have a look at the market snapshot of Asian Paints share:
Asian Paints' Share's Market Snapshot
Asian Paints' Share's Market Snapshot

A PE multiple of 47.42 and a P2BV of 14.84? How can one justify such high valuations, that too for a company that is displaying decent but ordinary profitability margins?
The final conclusions and my investment advice are as follows:
Final Conclusions:
  1. Asian Paints is without doubt a great company with market leadership and strong brand value. It will shine in any value investor’s portfolio.
  2. The EBDITA, EBT and PAT margins are decent but nothing to brag about. The company is consistently profitable for many years into the past.
  3. Current Ratio is a bit weak but TOL/ TNW and Long-term Debt-Equity Ratio are strong.
  4. Free cash flows are good and well deployed.
  5. PE Ratio of 47.42 makes the share highly expensive.
  6. Price to Book Value Ratio (P2BV) of 14.84 again makes the share very expensive and unaffordable.
  7. The market condition parameters of five-year price graph and five year returns do not favour buying the share presently.
  8. Though the company is distributing a good proportion of the profits as dividends, the high market price has pulled down the dividend yield.

 Final Investment Advice:
  1. Asian Paints is a good company.
  2. Market price is too high.
  3. Only during post Lehman Brothers bank collapse like situations will the price come down. Even then it will never come down enough to bring down below a PE of 15 and P2BV of below 1.5. Buy the Shares of Asian Paints only during such times. Certainly not now.

Please read the full investment research report:

Happy Investing!
Thank you,
With Best Regards

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