Buy Asian Paints; target of Rs 3689: Sharekhan

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Sharekhan's research report on Asian Paints

Asian Paints Ltd (APL) clocked a strong all-round performance in Q1FY2023 with consolidated revenues growing by 54.1% y-o-y to Rs. 8,609.9 crore and OPM improving by 172 bps y-o-y to 18.1% resulting in healthy 83.5% growth in the adjusted PAT to Rs. 1,053.9 crore. Volume growth of the decorative paints business stood at 37% highest in the past six quarters; demand environment remains stable across key markets and management target double-digit volume growth in quarters ahead. Raw material inflation to moderate (likely at 1-2% in Q2) by H2FY2023; Management expects gross margins to stay at 38-40% in the near term, backed by improved mix and calibrated price hikes.

Outlook

APL’s stock price moved up by ~20% from it recent low and the stock is currently trading at 70.4x/54.9x its FY2023/24E earnings. We maintain a Buy on the stock with an unchanged PT of Rs. 3,689.

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Asian Paints - 270722 - khan