ICICI Direct Initiates A Buy Call For This Stock For 17% Upside, In 1 Year, Improved Revenue

Reputed brokerage firm ICICI Direct initiated a buy call for the stocks of Asian paints, for a 17% returns, in 1 year. Asian Paints' value market share increased 2.7% in Q2, and the company expects pent-up demand in Q1FY23E post easing of lockdown restrictions.

Target Price

The Current Market Price (CMP) of Asian paints, is Rs. 3307. ICICI Direct has estimated a Target Price for the stock at Rs. 3870. The company is anticipated to give 17% return, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 3307
Target Price	Rs. 3870
1 year returns	17.00%

Company performance

Asian paints, in Q3FY22, has reported revenue growth of 26% YoY to Rs. 8527 crore (up 20% QoQ), led by volume growth of 18%. Gross margins declined 832 bps YoY, resulting in an overall fall in EBITDA margin by 825 bps YoY to 18.1%. On the other hand, PAT fell 19% YoY to ~ Rs. 1026 crore, ahead of the firm's estimate of Rs. 921 crore. The company took a price hike of 4% in Q2FY22 and has further guided to take price hikes to offset higher input prices. Asian Paints reported strong volume growth of 18% YoY even on a higher base of last year. The company has taken an aggressive price hike of 15% in Q3FY21.

Comments by ICICI Direct

Commenting on the company's potential, ICICI Direct stated, "Pre-buying at dealer level (amid fear of price hikes) and strong demand from metros/tier I & tier II cities helped drive volume growth in Q3FY22. Further, industrial paints demand was led by strong growth in the protective coatings segment. Despite being in a capital-intensive business, the company has maintained a strong balance sheet with RoCE, RoE of 31%, 27%, respectively. Kitchen and bath business revenue increased 37% and 42% YoY to Rs. 111 crore and Rs. 103 crore, respectively, in H1FY22. The company sees strong traction from home décor and painting services business."

About the company

Asian Paints (APL) is India's largest decorative paint company. The company derives ~98% revenue from the paints business while 2% of business comes from the home improvement business (kitchen and bathroom fittings). Increased focus on the 'waterproofing & building chemical' category will continue to drive revenue growth for Asian Paints. Waterproofing & building chemical industry is pegged at Rs. 6000 crore vs. Rs. 1.5 lakh crore in China. Their repainting represents ~80% of total decorative paint demand.

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Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.