Hold Asian Paints; target of Rs 3159: Prabhudas Lilladher

Prabhudas Lilladher's research report on Asian Paints

We cut FY25/26 EPS estimates by 1.2%/1.4% given little scope to improve margins (all time high levels ex of covid year) on expected increase in competitive activity (Grasim’s entry) despite sustained double digit volume growth expectations. 3Q volumes are up 12% owing to improved sentiments in festive & wedding season along with significant traction in luxury/economic range. Domestic outlook remains positive across decorative, Auto and industrial segments while IBD has uncertainty due to Geopolitical issues. Home décor is showing noticeable signs of improvement segments while “Beautiful Homes” stores & network continues to scale up. APNT’s structural moat driven by 1) market share gains in decorative paints 2) sustained increase in distribution (addition of 2k retail touch points in 3Q24 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 remains intact. We expect stunted growth in medium term given that 1) near peak EBIDTA margins 2) likelihood of price cuts (1.3% in 3Q24) 3) 4Q24 entry of Grasim in decorative paints.

Outlook

We believe valuations at 52.5xFY26 EPS don’t factor in slowdown in profit growth and increase in competitive intensity fully. We cut DCF based target price to Rs3159 (Rs3466 earlier) and rating to HOLD (Accumulate earlier) and would avoid fresh entry at current prices.

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