Asian Paints Ltd. share price target

Asian Paints reported Q2FY20 numbers were significantly below our estimates because of slower revenue growth and significant increase in cost structure. While the company continued to deliver double digit volume growth, but adverse product mix, higher discounting and promotional expenses resulted in slower operating profit growth. Earnings were higher because of lower taxes. We incorporate slower revenue growth and lower tax structure resulting in earnings upgrade of 7%/8% for FY20/21E. We value the company at 50x FY21E earnings to arrive at our target price of Rs 1,725. We maintain our hold recommendation on the stock. The key takeaways of the results and conference call are as follows:...

Bajaj Finserv delivered a healthy performance in terms of topline across segments. A tax rate cut has supported growth in earnings. The only hit was higher claim in general insurance offset by higher investment income. Premium accretion in general insurance remained healthy with growth at 27% YoY to | 4279 crore, primarily led by crop insurance. Excluding crop insurance, premium growth at 14% YoY to | 2550 crore. Claim ratio came higher at 75% led by claim from Maharashtra and Kerala. Accordingly, combined ratio increased to 102.7% in Q2FY20 vs. 97.2% in Q2FY19. Thus,...

We model revenue, earnings CAGR of 16%, 27%, respectively, in FY19-21E led by strong volume growth of ~14%. Despite a challenging FY19 (on account of tightening credit conditions, construction slowdown due to general election, supply chain disturbances due to GST rate reduction from 28% to 18%) Asian Paints witnessed strong volume growth of ~13% YoY in FY19. The company also commissioned two large paint manufacturing units of 300,000 KL/annum each at Mysuru and Visakhapatnam in FY19. For FY1921E, we believe APL would report strong earnings growth supported by volume growth, change in product mix and tax cut in FY19-21E. This...

Asian Paints delivered on an operationally strong quarter amid macroeconomic slowdown as it reported a healthy double digit volume growth in decorative paints segment (16% per our estimate) leading to 17% revenue growth led by aggressive channel push.

APL's decorative volume growth at ~15%YoY was much higher than our expectation of ~11%. This was driven by 1) strategic dealer push, 2) low base (due to dealer de-stocking in Q1FY19 owing to GST rate cut, 3) strong demand from rural India and 4) market share gain in bottom of the pyramid products post implementation of GST. We model volume growth of ~14% for FY19-21E (lower than ~15% of Q1FY20) owing to intact demand from...

Q1FY20 revenue grew by 17% YoY (above estimate) aided by double digit volume growth (~15% YoY) in decorative paint. EBITDA margin improved by 121bps YoY to 22.5%, increase in demand for waterproofing coating & premium paints supported operating performance. While higher depreciation (42%YoY) and interest cost (28%...

While results were strong amidst a muted operating environment, the ongoing economic slowdown adds an element of uncertainty to the earnings growth prospects, particularly given APNTs massive capacity expansion (addition of 50% to Sept18 capacity up to Mar19; to be scaled up to 100% by Mar20). The deteriorating product mix and the weak progress on monsoon could further sour the case for earnings acceleration. PAT CAGR has been a meager 6% over the past three years, and given the challenges indicated above (and despite earnings upgrade post the good numbers in 1QFY20), FY20 appears poised for another year of low PAT growth. RoCE, which stood at close to 40% at the beginning of the decade, deteriorated to 28% in FY16 and further to 21.3% in FY19 (far inferior to peers). Against this backdrop, valuations of 49.7x FY21E EPS (40% premium to peer average, despite moderate earnings prospects and inferior RoCE) appear stretched.

Asian Paints delivered on an operationally weak quarter impacted by a weaker-than-expected revenue growth (in terms of volume up 10% and price/mix led growth).