Most analysts raised their target price for Asian Paints Ltd. as demand improved and lower costs aided the paintmaker’s margin in the quarter ended September.
The company’s revenue increased 6% over the year-ago to Rs 5,350 crore in the July-September period. Its net profit rose 1% to Rs 831 crore.
Lower crude oil prices and overall cost saving initiatives aided the paintmaker’s operating profit and margin. Operating profit rose 32.5% year-on-year to Rs 1,266 crore, while operating margin expanded from 18.9% to 23.7%.
That even prompted most brokerages to maintain their bullish stance on Asian Paints. Of the 39 analysts tracking the stock, 21 have a ‘buy’ rating, 10 suggest a ‘hold’ and rest recommends a ‘sell’. Shares of Asian Paints were trading as much as 1.20% higher in early trade on Friday, compared with 0.43% gain in the Nifty 50 Index.
Here’s what brokerages have to say…
Citi
- Maintains ‘neutral’ rating; raises price target to Rs 2,140 from Rs 2,110 apiece
- Cost controls drive profit beat
- Strengthening its decor play with forays in lightings, furnishings, and furniture
- Raises earnings estimates by 1-6%, driven mainly by lower overheads
- Need to track Covid-19 situation but business prospects fairly steady
- Valuations limit upside post recent outperformance
CLSA
- Maintains ‘outperform’ rating; hikes price target to Rs 2,285 from Rs 2,200 apiece
- Focus on sustaining double-digit momentum critical
- Well placed to capitalise on tailwinds and sustain volume-led growth in medium-term
- Raises revenue estimates by 3-5% but largely maintain earnings estimates over FY21-23
- Remains preferred pick in the discretionary space
Nomura
- Maintains ‘buy’ rating; raises price target to Rs 2,384 from Rs 2075 apiece
- Demand in tier 3, 4 towns back to pre-Covid levels; metros and tier 1 and 2 cities at 70-80% of the normal level
- Economy emulsion upgrades and undercoats continue to grow, luxury emulsions also saw good demand
- Highest ever operating margin benefited from lower advertising and promotion and cost optimisation measures
- Expects FY21-23 EPS CAGR of 23%
HSBC
- Maintains ‘buy’ rating; raises price target to Rs 2,350 from Rs 2,250 apiece
- Q2 beat expectations across the board
- Decorative volume growth of 11% is significantly ahead of consensus, led by robust demand in tier 2, 3 towns
- Ebitda margin expanded about 500 basis points, aided by lower raw material costs, better mix, and prudent cost optimisation which should continue
- Inventory levels in the channel have increased compared to Q1, but are still below pre-pandemic levels
- Other businesses also reported improving demand trends, in line with the phased re-opening of the economy. The international business did quite well, led by the Middle East, Africa and Asia
Emkay Global
- Maintains ‘hold’ rating; raises target price to Rs 1,920 from Rs 1,650 apiece
- The strong pace of recovery; growth outlook improving
- Margin beat led by cost savings and lower ad spends
- Raises sales, earnings estimates by about 8%, 3%, respectively; and values the stock at 45 times multiple now, in line with peers
- The stock saw a strong run-up and at current valuations; believes a lot of positives are priced in
Motilal Oswal
- Maintains ‘neutral’ rating; raises target price to Rs 1,980 from Rs 1,855 apiece
- Strong beat on estimates; demand improving further
- With stable material cost as well as currency, elevated margins likely to sustain over the next few quarters
- Increases FY21/FY22 EPS estimate by 9%/5.7% owing to improving commentary on top-line growth and stable margins
- Asian Paints has creditably posted much faster recovery compared to most discretionary peers, which should ensure premium valuations.
- Valuations of 58.4 times estimated FY22 EPS appear to be fully capturing the growth revival
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