Asian Paints Q1 Review: Analysts Expect Double-Digit Volume Growth In Long Term

Asian Paints Ltd. reported a 52% rise in its net profit for the first quarter of fiscal 2024, beating analysts' estimates. Brokerages have an optimistic outlook on the paintmaker for the long term.

The company's consolidated sales grew 7% year-on-year to Rs 9,182 crore.

However, the near-term profitability of the company may be impacted by increasing competition from new entrants, according to analysts.

Asian Paints Ltd. Q1 FY24 highlights (Consolidated, YoY)

• Revenue rose 7% to Rs 9,182.3 crore (Bloomberg estimate: Rs 9,388.5 crore).

• Operating profit rose 36% to Rs 2,121.3 crore (Bloomberg estimate: Rs 1,986.8 crore).

• Margins expanded to 23.1% from 18.1% (Bloomberg estimate: 21.2%).

• Cost of materials consumed eased 11.6% to Rs 4,071 crore.

Asian Paints saw its volume grow by 10% YoY, led by its premium and waterproofing ranges, while the luxury segment saw muted performance.

Gross and Ebitda margins improved, driven by deflation in key raw material prices (2% material deflation in Q1 FY24).

Axis Securities

• Downgrades to 'hold', with a target price of Rs 3,500 (earlier Rs 3,400) due to intensifying competition.

• One-off adjustments affected margin, but Ebitda margin remains healthy.

• Remains positive on the company in the long term but expects limited upside potential in the near term.

• Margin improved in Q1 FY24 due to 2% material deflation.

• International business declined 1% YoY due to the challenging environment in specific countries.

• Positive about recent plant construction and efforts for backward integration.

• Near-term profitability may be impacted by increasing competition from new entrants.

Dolat Capital

• Maintains 'accumulate' rating with a target price of Rs 3,640.

• Notes double-digit volume growth in the decorative segment, with volume growth as a key revenue driver.

• Crude oil and Titanium Dioxide showed deflation during the quarter.

• Industry growth, capacity additions, and acquisitions will drive double-digit volume growth in the long run.

• EPS estimates for FY24/25E were maintained at Rs 55.6/66.2, with a stock valuation of 55 times FY25E EPS.

Motilal Oswal Financial Services

• Retains 'neutral' rating with a target price of Rs 3,120.

• Attributes 10% volume growth to a strong economy and premium segments, with the luxury segment lagging.

• Cautions about new players, with substantial investments impacting demand and margin in the paints segment.

• Significant earnings growth (10–12% CAGR range) is not what drives stock appreciation.

• Assumes FY24/FY25 Ebitda margin at the top end of management's guidance, while new capex plans might dilute it.

• No material changes to FY24E/FY25 EPS estimates; the brokerage values the stock at 50 times FY25E EPS.

Prabhudas Lilladher

• Downgrades rating to 'hold' with a target price of Rs 3,527 (Rs 3,360 earlier).

• Expects increased competitive intensity from Grasim and JSW in the coming years.

• Upgrades FY24/25 EPS estimates on account of a strong demand outlook, a benign raw material outlook, a stable pricing environment, and sustained strength in industrial paints.

• Income before depreciation margin remains under pressure with an uncertain currency outlook.

• Home décor shows mixed growth due to a high base in the kitchen and bath segments.

• Values the stock at 53.5 times FY25 EPS.

There has been an uptick in rural demand from tier-3 and 4 centres, which matched the growth observed in tier-1 and 2 cities, said Amit Syngle, managing director and chief executive officer at Asian Paints.

He also attributed the increase in demand to the B2B segment, which was driven by increased construction activities in the builder segment along with strong government spending on infrastructure projects.

The company expects strong volume during the festive season, particularly in September and October, which will be a key driver for achieving double-digit growth this year, Syngle said.