Although the demand environment is volatile and challenging, Asian Paints is confident of achieving double-digit volume growth for FY14, which implies 8.5-9% growth in Q4.
In our view, lower-than-expected Q3 volume growth of c7% was also due to overstocking in the last quarter due to the early festive season (Q2 volume growth was inflated at 13-14%). Employee costs had one-off elements of new wage settlements with the union (arrears paid of past periods were provisioned in Q3).
We remain overweight on the stock but cut target price to R590 (from R610). Valuation that looks optically expensive at 31.6x FY15 PE is actually pricing in relatively modest growth expectations of c11%. We view this short-term weakness as temporary and any excessive weakness on the back of these results as a buying opportunity into this structurally attractive name.