Paints: Asian Paints retains its lustre - AMBIT

Berger stock, post the ~20% rally in the last quarter, now trades at par with Asian Paints on FY14 P/E multiple of 34x in contrast to the deserving 42% discount to latter over the last two years. We expect Berger's valuations to correct and settle at atleast 20% discount to Asian Paints as we find the recent compression in gross margin differential between the two companies as temporary given the same is not led by premiumisation but by a weak base effect for Berger from FY12. Notably, Asian Paints continues to improve upon its supply chain and brand recall, thereby making it difficult for a competitor to gain ground in the short term. We maintain BUY on Asian Paints with a TP of Rs4,932 (implying 35x FY14 EPS) but turn SELLers on Berger with a TP of Rs204, (implying 28x FY14 EPS).

Source : Equity Bulls

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