Prabhudas Lilladher's research report on Asian Paints
We cut rating from Accumulate to Hold given valuations of 53.5xFY25 EPS and expected increase in competitive intensity from Grasim and JSW in coming years. We upgrade our FY24/25 EPS by 3.4/3.5% but given 1) strong demand outlook (10% volumes during 1Q24) and 2) benign raw material outlook and stable pricing environment and 3) sustained strength in Industrial paints (Auto and non-auto industrial). 1Q saw a sharp 190bps QoQ EBITDA margin recovery to 23.1% supported by 40bps QoQ gross margin improvement. IBD margins remain under pressure with uncertain currency outlook while Home décor is showing mixed growth due to high base in kitchen and bath segments. Long term growth levers are intact led by 1) market share gains in decorative paints 2) sustained increase in distribution (addition of 6k retail touch points in 1Q24) 3) focus on high growth waterproofing/wood finishes/ projects business 4) scalability plans in home décor from 4-5% to 8-10% of sales by FY26 (both organic and inorganic).
Outlook
However, re-rating potential is limited given expected increased in competition and rich valuations. We value stock on DCF and assign target price of Rs3527 (Rs3360 earlier). Cut to Hold.
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