Accumulate Asian Paints; target of Rs 2605: Prabhudas Lilladher

Prabhudas Lilladher's research report on Asian Paints

APNT maintained double-digit volume growth guidance for FY25, having overcome major headwinds in Q1, green shoots in rural markets, improved monsoon conditions, increase in infra activities post elections and hopes of positive festive season impact. The domestic outlook remains positive across decorative, auto, and industrial segments, while IBD faces uncertainty due to geopolitical issues. The Home décor segment is sustaining growth while economy paints are likely to benefit from recently launched Neo Bharat. However, we cut FY25/26/27 EPS estimates by 10.4%/8.4%/6.3% due to limited margin improvement potential (all-time high levels ex COVID year) due to material price inflation (1% price hike in July, more might follow), increased spending on distribution, advertising, and supply chain amid rising competitive intensity following Grasim’s entry. Next few quarters are crucial to assess the impact of Birla Opus on the market and APNT.

Outlook

We now estimate decline of 7.2% in FY25 PAT (24.5% in 1Q) and 4.1% growth in FY26. APNT trades at 54xFY26 EPS and 52.7xJune26 EPS. We cut DCF based target price to Rs2605 (Rs2672 earlier). Retain Reduce rating on the stock.

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