Hold Asian Paints; target of Rs 2,960: Sharekhan

Sharekhan's research report on Asian Paints

Asian Paints Limited’s (APL’s) Q4FY2024 performance was a miss on all fronts with consolidated revenue coming in flat at Rs. 8,731 crore (affected by value decline), OPM declining by 125 bps y-o-y to 19.4% due to higher media spends, and PAT remaining flat y-o-y at Rs. 1,250 crore. Decorative paints’ volume growth stood at 10% in Q4FY2024. Realisation decline was 12% due to price cut of 3% and downtrading to economy range of products. Volume growth to remain in double-digits, value-volume gap will remain at 5-6%. We expect OPM to remain at the lower end of the guided band of 18-20% due to higher media spends.

Outlook

APL’s management is confident of maintaining double-digit volume growth in Q1FY2025 and the quarters ahead, with a sustained recovery in rural demand and small towns. Value growth will remain lower due to mix impact. An expected build-up in competition from newly entered large players would pose a risk to the profitability in the near term. The stock trades at 47x and 42x its FY2025E and FY2026E earnings, respectively. The risk of heightened competition in the core paint segment and its pressure on margin keeps risk reward unfavourable. Hence, we maintain our Hold recommendation on the stock with a revised price target (PT) of Rs. 2,960 (reducing the PT in-line with the reduction in earnings estimates).