Accumulate Asian Paints; target of Rs 3150: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Asian Paints with a target price of Rs 3150 in its research report dated January 19, 2023.

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January 20, 2023 / 16:07 IST

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Prabhudas Lilladher's research report on Asian Paints

We cut our FY23/FY24/FY25 EPS by 6.3/9.1%/8.5% given 1) flat volumes during 3Q23 2) intent to maintain competitive pricing among rising competition with GM band of 38-40% & EBIDTA margin band of 17-20% and 3) lower other income due to Rs20bn capex on greenfield paints unit. 3Q saw a sharp 414bps QoQ ETBIDA margin recovery supported by 284bps QoQ gross margin improvement despite mix deterioration & no further price hikes. We believe APNT might pass on benefits of lower RM costs to consumers to push volumes and improve market competitiveness. Long term growth levers are intact led by 1) market share gains in decorative paints 2) increased distribution (addition of 10k retail touch points in 9M23) 3) innovations & focus on high growth waterproofing/wood finishes segment 4) scalability plans in home décor from 4% to 10% by FY26 (both organic and inorganic). We believe APNT’s plans of backward integration into VAE & VAM, white cement JV in UAE and nanotech emulsion paints shows larger plans of the company to grow in futuristic coating segments, the benefits of Rs8.75bn capex will start getting reflected from FY26 only. We see little scope of further re-rating given likely aggression from Grasim & JSW in Paints and impending capex plans.

Outlook

We value stock on DCF and assign target price of Rs3150 (Rs3326 earlier). we expect back ended returns given emerging competition and valuations of 47.2xFY25. Accumulate for long term gains only.

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