Prabhudas Lilladher's research report on Asian Paints
We increase our FY23/FY24 EPS by 34.3%/29.3% given 1) bottomed out margins on sharp decline in input costs in past few weeks 2) Benefits of calibrated price increases (25% YoY) 3) strong demand for both B2C and B2B segments in paints 4) Improved mix in paints and sustained traction in home décor, waterproofing and project business. APNT reported marginal QoQ decline in margins despite calibrated pricing action and superior mix as 6% QoQ inflation impacted profitability despite strong broad based volume growth. APNT expects commodity prices to remain volatile in near-term although strong demand is likely to sustain. We believe long term structural levers remain intact led by 1) market share gains in decorative paints in an industry growing at double digits 2) increased distribution (addition of 5k retail touch points in 1Q23) 3) innovations & focus on high growth waterproofing/wood finishes segment 4) scalability plans in home décor from 4% to 10% by FY26 by both organic and inorganic means. We expect APNT to sustain premium valuations given strong growth visibility.
We maintain our BUY rating with a TP of Rs 3363 (Rs 3018 earlier). However, valuations at 53.8xFY24/51.7xJune24 EPS will remain a little overhang given Grasim’s aggressive entry plans in Decorative paints in FY24.
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