Wednesday, 22 August 2012

Case Study Asian Paints Pt-1

Since the beginning of this blog we have stressed on the advantages of investing in stocks. Having learnt about the balance sheet we are at a comfortable level of learning to invest in stocks. We will study different companies and judge them on the basis of points that we laid down earlier and see if they are good stock investment options. So, let's get started...

In this post and the next we will do a case study of Asian Paints.

Like a mature stock investor, we need to decide if Asian paints is good to invest in. For this, we need to get a feel of the sector outlook and also try to know something about the company (Asian Paints).

As far as the sector is concerned, the paints industry has an obvious close relationship to the housing industry.

As per experts, the housing industry in a growing country like India is still in a nascent stage when compared to other countries. But, given the country’s growth, this sector has a lot of potential. And as the housing industry grows, other industries having close interrelationship with the housing industry will also see a lot of growth. One such industry is the paints/varnishing industry. As the real estate industry grows, the paints industry also has to cope up to meet the increasing demands.

Asian Paints already has a major foothold in the sector from the last 40yrs. The company has been performing well in the past and is expected to grow in the future. Due to its past-performance and the future outlook, this company always trades at a premium to its competitors in the same sector.

Asian Paints is the third largest paint company in Asia. Asian Paints and its subsidiaries have their presence in 17 countries and the company has manufacturing facilities in many of these countries.

At the first glance the company may look pricey because it is currently trading at about 35 P/E TTM. But, the sector itself has a potential for huge growth as mentioned above. Taking the overall picture into consideration  it is not wrong to consider it as a growth stock. It is, however a buy-on-dips stock.

We still need to look into the company at a deeper level to see if it is a good stock to invest in. We will continue in the next post.