Analysts Raise Target Price For Asian Paints After Q2 Results

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