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Axis Securities Report
Financial performance:
Asian Paints Ltd.'s Q2 FY24 results were below our estimates. Consolidated sales were flat YoY to Rs 8,479 crore (volume grew 6% YoY) owing to weak consumer demand. Gross/Ebitda margins improved by 764/573 basis points YoY to 43.4%/20.2%, driven by deflation in key raw material prices (4% material deflation in Q2 FY24).
Adjusted profit after tax increased by 54% YoY to Rs 1,205 crore.
Outlook:
We remain positive on Asian Paints' long-term prospects, supported by the following factors:
The management's guidance for continued double-digit volume growth in FY24, buoyed by the long festive season and rural recovery;
Decline in raw material prices;
The company's recent announcement of A vinyl acetate ethylene emulsion and vinyl acetate monomer plant, and Plans of a white cement plant through a joint venture in Fujairah, UAE, to backward integrate key raw materials,
Expanding manufacturing footprint by more than 30- 40%, and
Launching differentiated next-generation emulsions and waterproofing products based on nanotechnology.
These are steps in the right direction to achieve the next phase of growth and secure the company's market share in the long term. However, we believe the stock is likely to see side-ways movement owing to an uncertain demand environment and increased competition from the new entrants which will keep the profitability under check in the near term.
Based on this, we maintain our 'Hold' rating on the stock.
Key risks to our estimates and target price
Increase in competitive intensity, prolonged demand recovery, raw material inflation
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