We maintain our ?neutral? rating on Asian Paints and assign a target price of R4,105.

We value Asian Paints at 25x rolling on year-forward EPS of R164. Our target multiple of 25x is a 4% premium to other consumer stocks under our coverage as we believe, in the long term, Asian Paints has the potential to deliver higher-than-average earnings growth. Given high valuations (27.3x FY15f), and an uncertain demand environment, we believe near-term stock price performance is likely to be muted.

Asian Paints reported Q4FY13 numbers, which were significantly below our and Street expectations.

Consolidated revenues grew 6.9% to R2,713 crore, 7% below our expectations. Consolidated Ebitda margins were at 13.8%, down 100 bps versus our expectation of margins moving up 100 bps y-o-y.

Consolidated net income at R250 crore was 17.5% lower than our expectations and 22% lower than consensus numbers. Negative surprise came from volume growth slowing significantly on a sequential basis from low teens in Q2FY13 to low single digits in Q4FY13. The one positive from the result was gross margins, which improved ~270 bps y-o-y.

Demand conditions during the quarter were impacted by macro-economic conditions and the management has presented a cautious outlook for FY14.

In an environment where real GDP growth remains subdued, demand for paints is not likely to see a sharp rebound on an annual basis in FY14. Input cost environment has softened significantly, which is a positive into FY14.

The company commissioned a new plant at Khandala during the quarter, which meant that overhead expenses have seen a sharp rise. Since the plant became operational only during Q4, it is running at less than optimum capacity, which could continue to impact overhead costs for some quarters.

International business remains challenging, but does offer potential for long-term growth. West Asia and Southeast Asia are regions where the management is more positive, while the Caribbean region continues to have its challenges. For FY13, international business registered 23% sales growth on a reported basis and 12% on a constant current basis.