Asian Paints Ltd. share price target

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).

Asian paints (APNT), is the market leader in the Indian paint manufacturing industry with a market share of ~53%. Q4FY19 revenue grew by 12% YoY (below estimate) aided by double digit volume growth ~10%. However, inferior product mix, trade discounts and higher...

initiatives. The capex for FY19 was Rs 10bn. Downgrade to Hold: Considering the slower revenue growth and impact of rising cost structure our earnings estimates see material downward revision of 10% each for FY20 and FY21 respectively. Considering the pressure on margins, we cut our target multiple to 42x...

Asian Paints' (APL) profitability during Q4FY19 was largely hit by a change in product mix. The company reported volume growth of ~11% (I-direct estimate: 13%) largely driven by economy product range such as Distemper and Putty. Though the company took a price hike of ~6% in FY19, the change in product mix restricted value growth. As a result, gross margin declined ~170 bps YoY. In addition to this, higher fixed cost associated with new plants weigh on EBITDA margin, which declined ~233 bps YoY at 16.4%. Flattish PAT is attributable to higher depreciation and lower EBITDA...

respectively. Gross/EBITDA margin was down 100bp/80bp YoY. Analyst meet highlights: (1) Near-term growth outlook remains uncertain. (2) Standalone business capex to be ~INR7b for FY20. (3) Faster growth in economy emulsions, distemper and putties is leading to mix corrosion. Valuation and view: We cut our FY20/21 EPS forecast sharply by 16.5%/15.3% to factor in (a) the slowdown amid a higher fixed cost environment, with APNT having just finished a massive round of capacity addition (>50% capacity added over the last six months), (b) the weakening...

Asian Paints delivered a robust Q3 with solid volume-led growth (up 24% YoY, Q2+Q3 combined volume growth at 16%+ YoY) aided by low base, festive timing shift and GST-cut led tailwinds.

Asian Paints recorded a stupendous performance with topline growth of ~24% YoY led by ~21% YoY (I-direct estimate) growth in volume. Strong festive demand coupled with aggressive price hikes (~6% YoY in May-December 2018) helped drive the topline in Q3FY19. The volume growth was led by lower end product categories (higher distemper sales in Q3FY9) resulting in lower realisation growth. According to the management, the price hike was insufficient to offset the higher raw material prices. As a result,...

Asian paints (APNT), is the market leader in the Indian paint manufacturing industry with a market share of ~53%. Robust volume (~21%) in decorative business supported the topline growth of 24% YoY in Q3FY19. However, EBITDA margin declined by 118bps YoY to 19.7% due to lag in price hikes and rise in overhead expenses for the new plant. Higher depreciation (29%YoY) and fall in other income (9%YoY) restrict earnings growth to 14% YoY. Volume growth is likely to stabilize at double digit due to fall in oil...