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What should investors do with Asian Paints after Q1 results: buy, sell or hold?

Asan Paints reported a net profit of Rs 574.3 crore, up from Rs 219.6 crore in the year-ago period. The spike was due to the low base last year

July 22, 2021 / 10:35 AM IST
 
 
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Asian Paints share price was trading at Rs 3,132.70, down Rs 26.50, or 0.84 percent, in the morning session on July 22. The company had on July 20 reported a net profit of Rs 574.3 crore from Rs 219.6 crore in the year-ago period. The spike was due to the low base of last year.

The profit, however, was below market expectations, as a CNBC-TV18 poll of analysts had expected the figure at Rs 721 crore. Revenue jumped 91.1 percent YoY to Rs 5,585.4 crore against Rs 2,922.7 crore in Q1FY21. Revenue was slightly above the CNBC-TV18 poll estimate of Rs 5,550 crore.

EBITDA jumped 88.7 percent to Rs 913.6 crore against Rs 484.3 crore YoY, while the EBITDA margin came at 16.4 percent against 16.6 percent YoY.

The company's paints business revenue grew 90.4 percent to Rs 5,464.7 crore versus Rs 2,870.6 crore YoY.

The EBIT of the paints business came at Rs 809.1 crore against Rs 371.6 crore YoY, while the EBIT margin of the segment stood at 14.8 percent versus 12.9 percent YoY.

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Shitij Gandhi, Senior Technical Analyst, SMC Global Securities, has a buy call on the stock, with a target of Rs 3,550 a share.

"At the current juncture, it has given a fresh breakout above the consolidation zone with larger volumes. The price-volume action with breakouts suggests a long build-up in the stock. Traders can accumulate the stock in the range of Rs 3,150-3,160," he said.

Here is what global brokerages have to say about the stock and the company after Q1 earnings:

Morgan Stanley | Rating: Downgrade to equal-weight from overweight | Target: Rs 3,143

The company's top line was ahead of our estimates and a big beat against the consensus but the margin disappointed. Management remains confident in the growth outlook. The uncertain direction of margin leads us to move to the sidelines. We will wait for a better entry point.

Goldman Sachs | Rating: Sell | Target: Rs 1,679

The company's gross margin contraction raises questions on pricing power. We lower FY22-24 EPS estimates by 2-11 percent. While Q2 is likely to benefit from pent-up demand, we remain cautious on margin.

UBS | Rating: Buy | Target: Rs 3,550

The company witnessed a tough quarter and an improved outlook. Management guides for a gradual price increase amid sustained inflation. Q1 domestic decorative volumes grew 106 percent YoY on a low base. It had an encouraging growth in the home-decor business.

Nomura | Rating: Neutral | Target: Rs 3,300

The company's strong demand continues despite the second Covid wave. Strong demand continues, aided by share gains from unorganised and organised players. Margin will remain compressed in the near term as pricing trails commodity inflation. Medium-term margin will be range-bound, given Grasim’s foray into paints.

Macquarie | Rating: Outperform | Target: Rs 3,500

Q1 sales performance re-emphasised resilient nature of decorative demand. We are less worried about near-term margin pressure. We cut the FY22 EPS estimate by 8 percent and FY23/24 EPS is raised by 3 percent.

CLSA | Rating: Outperform | Target raised to Rs 3,275

In an inflationary setting, focus on sustaining share gains eroded gross margin. On a low base, margin contraction was limited to 20 bps YoY. The company is optimistic about demand in FY22, with a better monsoon, Diwali and pent-up demand. It looks to maintain the EBIT margin at 19-21 percent.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jul 22, 2021 10:34 am

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