Asian Paints Q3 Results Review - Margins Drive Beat; Raise Estimates Marginally: Motilal Oswal

Motilal Oswal Report

Asian Paints Ltd. reported a volume growth of 12% YoY in Q3 FY24 (estimate: 13%), characterised by double-digit expansion in both rural and urban markets. The revenue growth is supported by an extended festive season.

However, it has been sluggish due to price reductions and unfavorable mix (low mix of luxury segment). Benign raw material prices continue to drive gross margin.

Asian Paints clocked a gross margin of 43.6%, the best in the last 11 quarters. The gross margin in FY25/FY26 will be the key monitorable, considering the changing competitive landscape and dwindling raw material price benefits.

Ebitda reported a beat led by a higher-than-expected gross margin improvement. Ebitda surged 28% YoY during the quarter. Asian Paints achieved a 22% Ebitda margin in nine-months-FY24. However, management reiterated its Ebitda margin guidance of 18-20% in the medium term.

We model a 21.5% margin for FY25/FY26.

We believe valuations are expensive at ~53 times FY25E EPS and 48 times FY26E EPS, especially considering the uncertain competitive pressure.

We reiterate our 'Neutral' rating with a target price of Rs 3,340 (based on 50 times December-25E earnings per share).

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