Buy Shares of India's Leading Paint Company: Anand Rathi

Anand Rathi, sees a significant upside from the stock of India's leading paint company, Asian Paints Limited. Despite the muted volumes in Q3FY23, for Q4FY23 the brokerage feels the demand will rise and would further help improve the margins. The stock price of the company would rise to a target price of Rs 3,260 per share, while the current market price is Rs 2829.05 per share.

Anand Rathi, highlights that "a protracted monsoon and early Diwali led to muted Q3 volume growth (flat y/y). Standalone sales rose 0.4% y/y (three-year volume/value CAGRs: 16%/17.6%). Growth was tepid but similar across T3/T4 towns and T1/T2 cities. The Q3 sales mix was led by the economy, with some down-trading in the premium and luxury category due to the steep price hikes."

In terms of market share, Asian Paints has "no material market share erosion, due to entrants (JSW Paints), though competition has turned keener in a few towns." even with Grasim's entry, the brokerage expects this would not change, "for demand would be steady as demand is expected to be steady and industry distribution is unlikely to accept a price cut."

According to Anand Rathi, valuations of Asian paints are rich. "Lower input prices would expand margins from Q4. We lower our FY23e/24e/FY25e 8%/6%/6% to factor in the weak Q3 volumes and higher capex. We acknowledge the rich valuations (53x FY24e EPS), but forecast 17% earnings CAGR over FY23-25 aided by margin gain. Paints companies have been the most consistent value creators over the last 3/5/10 years, with 15%/20%/20% CAGR returns. We believe this would continue, aided by steady earnings growth providing an entry opportunity, as the recent stock price fell. Thus, we upgrade Asian Paints to a Buy, with a price target of Rs 3,260 (55xFY25e EPS)."

In last one year the share price of Asian Paints Limited has fallen by 6.39% to Rs 2829.05 per share, which is up by 3.02% over previous day's closing price. However in three years the price has shot up by 69.18%, its 52-week high is at Rs 3,590 per share and 52-week low is at Rs 2,560.25 per share. The market capitalisation is Rs 2,71,457.77 crore

Disclaimer:

The stocks have been picked from the brokerage report of Anand Rathi, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.