Maintain REDUCE on Asian Paints - Exceeds expectations - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

APNT's topline delivery (43.5% YoY) exceeded expectations (HSIE: 35%). Growth was all-round. Decorative business clocked 48/46% volume/value growth, underpinned by (1) strong pent-up demand in paints and adjacencies (waterproofing) and 2) pick-up in metros and Tier 1/2 cities. Industrial subsidiaries too delivered a strong recovery. GM crack (down 266bp YoY at 43.2%; in-line) was a foregone conclusion, given runaway RM inflation. Strong cost control cushioned EBITDAM (+128bp at 19.8%; in-line). While the double whammy of the second wave and RM inflation is expected to be a drag in 1Q, demand normalisation trend over the year is unlikely to change meaningfully for a category like paints. Hence, we marginally cut our FY22/23 revenue/EPS estimates (-2% each and -2/1% resp). Our DCF-based TP stands unchanged at INR 2,300/sh, implying 54x FY23 P/E. Maintain REDUCE.

4QFY21 highlights: Revenue grew 43.5% YoY to Rs. 66.5bn (HSIE: Rs. 62.4bn) as all business vectors fired. Decorative volume/value grew 48/46% YoY (13/8% for FY21) underpinned by (1) strong pent-up demand in paints and adjacencies (waterproofing) and (2) pick-up in metros and Tier 1/2 cities. Industrial subsidiaries (PPG-AP and AP-PPG) too staged a strong recovery (+39/63% resp). Strong Auto sales momentum continued. Within non-auto, both industrial liquid and powder paints recovered well in 4Q. GM crack (down 266bp YoY at 43.2%; in-line) was a foregone conclusion, given runaway RM inflation. Strong cost control cushioned EBITDAM (+128bp at 19.8%; in-line). International revenue grew 21.8/6.5% YoY to Rs. 7.3/25bn in 4Q/FY21. Management commenced its round of price hikes (first round: +2.5% in Apr-21) to partly cushion expected impact on GM from RM inflation.

Outlook: APNT's wide distribution arbitrage has helped it recoup most of its annual demand in FY21. We expect a similar demand normalisation trajectory in FY22. Margin pressures remain, given the recent RM spikes (will partly be cushioned by price hikes). We marginally cut our FY22/23 revenue/EPS estimates (-2% each and -2/1% resp). Our DCF-based TP stands unchanged at INR 2,300/sh, implying 54x FY23 P/E. Maintain REDUCE.

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.2556.1 as compared to the previous close of Rs. 2556.6. The total number of shares traded during the day was 145066 in over 6791 trades.

The stock hit an intraday high of Rs. 2588.55 and intraday low of 2530.25. The net turnover during the day was Rs. 372375089.

Source : Equity Bulls

Keywords