ECONOMY

Asian Paints Q1 Results: Brokerages Raise Price Targets; Shares Fall

Analysts raised target prices for Asian Paints Ltd. on account of improving demand and market share gains even as concerns over rising input costs remain.

India’s largest paintmaker saw its profit and revenue fall sequentially in the quarter ended June but meet the consensus estimates of analysts tracked by Bloomberg. Its margin also contracted even as the company hiked prices to offset raw material inflation.

Amit Syngle, managing director and chief executive officer at Asian Paints, however, said the company’s domestic decorative business more than doubled its volume. “The business registered strong CAGR in value and volume in comparison with Q1FY20, which was a normal quarter.” The industrial and home improvement businesses, too, doubled revenue on last year’s low base. International businesses registered strong double-digit revenue growth.

Shares of Asian Paints fell as much as 1.88%, the most in nearly a month, to Rs 3,099 apiece. Of the 42 analysts tracking the company, 19 have a ‘buy’ rating, 10 suggest a ‘hold’ and 13 recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 4.1%.

Here’s what brokerages made of Asian Paints’ Q1:

Macquarie

  • Maintains ‘outperform’ rating, raises target price to Rs 3,500 from Rs 3,400.

  • Asian Paints’ sales performance re-emphasised resilient nature of decorative demand with 5% two-year CAGR despite severe second wave.

  • Less worried about near-term margin pressure (FY22 EPS cut 8%) given Asian Paints’ willingness to hike prices and moderating input costs.

  • CAGR at 5% was aided by healthy 106% decorative volume growth (sharper recovery seen in metros/Tier-1/Tier-2 cities), doubling of industrial and home improvement sales and double-digit growth in international sales. This offset weaker-than-expected gross margin (38.4%) as price hikes fell short of input cost inflation.

  • The company shared a positive outlook on demand given four straight quarters of double-digit volume CAGR on a three-year basis.

  • Asian Paints took 3% price hikes in May/June and another 1% in July to offset input pressures and is willing to take more hikes if required.

  • Further, some key input costs are showing signs of softening. Also, international margins should expand as Asian markets open up and more price hikes are taken.

  • Remains less concerned about inflation, given price hikes taken, moderation in costs of some inputs and industry history of maintaining margins through inflation cycles. This along with a bullish demand outlook enhances comfort in near-term EPS.

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