Maintain REDUCE on Asian Paints - Standing tall - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Delivering growth along with improving profitability and untouched free cash generation during a pandemic, especially when top cities are yet to fire (70-80% of base quarter sales) is a testimony to APNT's distribution and product portfolio heft. That said, the recovery is more than priced in at 54x Sept-22 P/E. We revise our FY22/23 EPS estimates marginally (2/4% resp) and, consequently, our DCF-based TP to Rs. 1,850/sh (earlier TP: Rs. 1,800/sh) implying 50x Sep-22 P/E.

2QFY21 highlights: Revenue grew 5.9% YoY to Rs. 53.5bn (HSIE: Rs. 52.4bn) as recovery was stronger than expected. Decorative business volume grew 11% YoY underpinned by encouraging pick up in Emulsions (low-end and Luxury alike), Undercoats and Waterproofing. Demand in Tier 2/3/4 towns have passed the pre-COVID19 level, and metros/Tier 1 cities continue to improve progressively (70-80% of pre-COVID sales). GMs expanded 197bp to 44.4% (in-line), aided by benign RM prices and better sourcing efficiency. EBITDA grew 32.5% YoY to Rs. 12.65bn (HSIE: Rs. 11.3bn). EBITDAM expanded 474bp YoY to 23.6% (HSIE: 21.5%) as GM savings trickled down and management continued to keep a tight leash on marketing, travelling, and other SG&A expenses. International revenue grew 7.8%/-9% YoY to Rs. 6.6/10.56bn in 2Q/1HFY21 and PBT grew 44.3/-5% YoY to Rs. 690/730mn respectively in 2Q/1H. Industrial Paints continues to witness gradual recovery. Kitchen & Bath business nearly touched the pre-COVID level with improving profitability.

Outlook: APNT's 2QFY21 recovery is a testimony to its dominance across distribution and product portfolio. However, at 54x Sept-22 P/E, pluses seem more than priced in. We maintain our REDUCE recommendation with a revised target price of Rs. 1,850/sh (earlier TP: 1,800/sh), implying 50x Sep-22 P/E. Note: TP change is a function of EPS change (2/4% for FY22/23).

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.2100.25 as compared to the previous close of Rs. 2114.35. The total number of shares traded during the day was 66138 in over 5903 trades.

The stock hit an intraday high of Rs. 2114.95 and intraday low of 2078. The net turnover during the day was Rs. 138467400.

Source : Equity Bulls

Keywords