Asian Paints Ltd. share price target

Asian paints (APNT), is the market leader in the Indian paint manufacturing industry with a market share of ~53%. Q3FY20 revenue grew by 3% YoY (below estimate) due to poor realization despite double digit volume (~11% YoY). Higher volume of economy products, price cut of 0.25% and slowdown in economy impacted the growth. EBITDA margin improved by 96bps YoY to 21.9% due to benign material cost and lower other expenses....

Change in product mix weighs on value growth While the decorative segment volume growth remained intact in 9MFY20, the change in product mix coupled with slight price cut on select product categories resulting in a decline in realisation of the company. The consistent growth in the decorative segment was largely due to 1) strong demand from tier II, tier III cities and rural India, 2) market share gain in bottom of the pyramid products and 3) launch of new products in the economy range. We believe paint demand will remain strong (~13% CAGR...

22 January 2020 APNTs ~-8% realization decline (on a base that had an already weak mix in 3QFY19) does not augur well for its sales growth beyond FY20, especially given the uncertain economic revival. While 4QFY20 should continue seeing YoY margin gains, there is uncertainty on further commodity price reduction in FY21/FY22, thereby tempering margin growth expectations. This means that EPS growth is likely to be in line with top line. On account of lower FY20 capex assumption and margin beat in 3QFY20, we have upgraded FY20/FY21 EPS estimates at 2%/3%; our FY22 forecast remains unchanged. net sales grew 3% YoY to INR54.2b (slightly lower than est. INR54.5b), despite volume beat of ~11% (v/s est. Note that 3QFY19 saw 23.5% sales growth. Despite significant mix deterioration, gross margins were up 190bp YoY to 43%. However, higher operational expenses mean that EBITDA margin expanded only 100bp YoY to 21.

Q2FY20 revenue grew only by 9% YoY due to adverse product mix & higher discounts ahead of festival season but volumes remains at double digit (~14% YoY). Benign material cost led to higher gross margin (257bps YoY) but increase in advertisement & promotional expenses restrict EBITDA margin improvement at 61bps YoY to 18.9%....

margins rose 60 bps to 18.9%. As a result operating profit growth rose 13% to Rs 954.82 crore. Cost of raw material consumed as a percentage of net sales (net of stock adjustment) fell 260 bps to 52.4% while purchase of stock in trade rose 120 bps to 7.2%, employee benefit expense rose 20 bps to 6.6% and other expense increased 110 bps to 15.9%. Other income of the company rose 62% to Rs 105.16 crore. Interest cost increased 1% to Rs...

Compared to our estimates, APNT delivered a relatively muted performance on revenue and operational front (2%/14% miss) despite a healthy 15% volume growth amid challenging conditions. A weaker mix (in favour of putty sales) down by 6% led to just 9% growth in topline.

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.