On 22 October, Asian Paints reported a better than expected performance for the September-ended quarter. Its consolidated net profit rose by 1.2 percent year-on-year to Rs 851.9 crore due to higher tax cost. Its revenue for the quarter under review rose 5.9 percent year-on-year to Rs 5,350.2 crore.
The decorative business segment registered a healthy double-digit volume growth for the quarter with demand picking up across regions, the company said.
After the Q2 results, analysts have mixed views on their stand over the stock which rose 41 percent in 5 months time, from Rs 1,500.05 on 20 May to Rs 2,116.40 on 23 October.
Price Target: Rs 1,980
The brokerage said that valuations at 58.4x FY22E EPS (Earnings Per Share) appear rich on account of: (a) weak earnings growth (FY16-21E PBT/earnings CAGR of 7.3%/8.9% with earnings boosted by corporate tax cuts), and (b) lower-than-peers ROCEs (mid-20% v/s early-30% for consumer peers) despite assuming more than 20% EPS growth for FY22E.
Valuing the company at 50x Sep'22E EPS, Motilal Oswal has a target price of Rs 1,980.
Price Target: Rs 1,850
The brokeage said that delivering growth along with improving profitability and untouched free cash generation during a pandemic, especially when top cities are yet to fire (70-80% of base quarter sales) is a testimony to APNT's distribution and product portfolio heft.
"That said, the recovery is more than priced in at 54x Sept-22 P/E," it added.
Price Target: Rs 2,440
Asian Paints reported stellar numbers with one of the best quarterly EBITDA margins in Q2FY21. The EBITDA margin at 23.6%, up ~470 bps YoY led by benign raw material prices and saving in other expenditure in Q2FY21. On the revenue front, sales growth at ~6% YoY was led by double-digit (I-direct estimate: ~10%) volume growth in Q2FY21.
"Despite being a lean season on account of monsoons, the strong decorative volume growth is attributable to significant pent up demand in rural and semi-urban regions led by repainting/maintenance activities. Gradual opening up of metro regions along with inventory build-up in the wake of festive seasons at dealer would have also help drive the volume growth in Q2FY21. We believe normalisation in metro regions, revival in the real estate industry and intact repainting demand from semi-urban, rural India would drive paint demand, going forward," the brokerage said on its rational behind a "buy" call.
"Besides, we believe favourable raw material prices are likely to keep gross margins elevated in the coming quarters even with a change in product mix. This, coupled with rationalisation of other costs would help drive EBITDA margin, going forward," it added.
"We revise our revenue, earnings estimates upside by 6% and 33%, respectively, for FY21E factoring in the current quarter performance. We introduce FY23 estimates with revenue, earning CAGR of 12%, 15% respectively in FY20-23E," ICICI Direct said.
Price Target: Rs 2,415
Edelweiss expects double-digit growth in decorative volumes to sustain riding the potential demand shift from the unorganised segment (~30%). This coupled with APL's capability to hike prices should help maintain margin.
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