Reduce Asian Paints; target of Rs 1840: Dolat Capital

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Dolat Capital's research report on Asian Paints

APL’s Q1FY21 revenues, EBITDA and APAT came below our estimate due to delayed pick-up in demand compared to our expectation. Nevertheless, double digit volume growth (+14%) in June’20, was a key positive. We believe overall volume de-growth in Domestic Decorative business was 38% in Q1FY21. IB posted mixed results as better performance in Africa and ME was offset by Covid led slowdown in Nepal and Bangladesh. Considering mixed impact of double digit exit rate for the quarter and lockdowns in few states in July, we believe that growth would normalize in H2FY21E. Consequently, we have maintained our EPS estimates for FY21E and FY22E at Rs 26.4 and Rs 33.5 respectively. We arrive at a TP of Rs 1,840 (55x FY22E EPS). Given rich valuations, we maintain our Reduce rating. Buy on dips. We believe that the volume growth in the decorative segment should remain high, especially in rural areas, given better crop production this season. Further, ongoing government investments in rural infrastructure, and house construction in rural areas should partially mitigate overall slowdown.

Outlook

In the long term, we remain optimistic about the paint industry, considering an expected shift from the unorganised to organised sector. APL, being a leader in the category, is likely to benefit the most from the shift.

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