Accumulate Asian Paints; target of Rs 3387: Prabhudas Lilladher

Prabhudas Lilladher's research report on Asian Paints

We cut FY24/25 EPS estimates by 3.1/4% following lower than expected volume growth and profitability in 2Q24. APNT has given optimistic outlook for 2H24 given rebound in demand in sept and expected pick up in festival season. Overall volume growth of 6% has been below our estimates given tepid rural demand and delayed festival season. We expect double digit volume growth in 2H while most gains from RM deflation have been mostly realized. IBD margins remain under pressure with uncertain currency outlook. Home décor is showing mixed growth due to high base in kitchen and bath segments while “Beautiful Homes” continues to scale up. APNT’s growth levers are intact given 1) market share gains in decorative paints 2) sustained increase in distribution (addition of 2.5k retail touch points in 2Q24 to 160k) 3) high growth in waterproofing/wood finishes/ projects business and 4) scalability plans in home décor from 4-5% to 8-10% of sales by FY26 (both organic and inorganic).

Outlook

We believe Grasim’s entry and diversification/ backward integration in White Cement and VAM can drag profit growth post FY24. We cut DCF based target price to Rs3387 (Rs3571 earlier). Retain Accumulate with moderate return expectations in near term.