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Maintain SELL on Asian Paints - Bolt out of the blue - HDFC Securities

Posted On: 2021-01-22 07:32:34 (Time Zone: Arizona, USA)

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

APNT delivered a strong surprise in 3QFY21 with top-line growth of 25% YoY. Growth was all-round. Domestic decorative business clocked 33/26% volume/value growth underpinned by (1) Strong pent-up + festive/marriage demand, (2) pick-up in Metros and Tier 1/2 cities (double-digit volume growth). Projects and large institutional business performed well too. EBITDAM expanded 440bp to 26.3% courtesy high GMs and strong cost control. While the rebound in demand has certainly surprised us, normalisation trend is unlikely to change in a category like Paints. We marginally revise our FY22/23 EPS estimates upwards (~3% resp), consequently, our DCF-based TP stands revised to Rs. 2,300/sh (earlier TP: Rs. 2,250/sh) implying 56x FY23 P/E. Maintain Sell.

3QFY21 highlights: Revenue grew 25% YoY to Rs. 67.9bn (HSIE: Rs. 61.9bn) as all business vectors fired. Decorative volume/value grew 33/26% YoY underpinned by (1) pent-up demand from 1H and festive/marriage demand, (2) pick-up in Metros and Tier 1/2 cities. Projects and large institutional business performed well too. GMs expanded 207bp to 45.1% (in-line), aided by benign RM prices and better sourcing efficiency. Note: RM prices are likely to inch up in 4Q post their recent December spike. EBITDA grew 50% YoY to Rs. 17.8bn (HSIE: Rs. 15.4bn). EBITDAM expanded 440bp YoY to 26.3% (HSIE: 24.8%) as GM savings trickled down and management continued to keep a tight leash on operating costs. International revenue grew 22.4/1.3% YoY to Rs. 7/17.56bn in 3Q/9MFY21 and PBT grew 171/46% YoY to Rs. 740/1,470mn respectively in 3Q/9M. Industrial Paints too pivoted to growth (double-digit volume growth).

Outlook: While the demand rebound has certainly surprised us (courtesy pent-up demand timing), the normalisation trend is unlikely to change in a category like Paints. We marginally revise our FY22/23 EPS estimates upwards (~3% resp), and consequently, our DCF-based TP stands revised to Rs. 2,300/sh (earlier TP: Rs. 2,250/sh), implying 56x FY23 P/E. Maintain SELL.

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.2600 as compared to the previous close of Rs. 2714.65. The total number of shares traded during the day was 177232 in over 14737 trades.

The stock hit an intraday high of Rs. 2770 and intraday low of 2590.5. The net turnover during the day was Rs. 473509328.

Source: Equity Bulls

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