Asian Paints Q4 results: Should you own this stock? here’s what brokerages say

 Asian Paints Q4 results: Share price fall even after robust Q4

Among the international brokerages, while Macquarie continues to be optimistic about the firm as it announces another quarter of industry-leading sales performance, Jefferies maintains an underperform rating on Asian Paints as rising competition risk continues to be a big concern.

For the three months that ended in March 2023, Asian Paints’ consolidated net profit increased by 45.12%, to ₹1,234.14 crore. This compares to a net profit of ₹850.42 crore in the comparable quarter of the previous fiscal year.

According to Asian Paints’ regulatory filing, the consolidated revenue from operations increased by 11.33% to ₹8,787.34 crore from ₹7,892.67 crore in the same period last year.

The board recommended paying the final dividend for fiscal year FY23 of ₹21.25 per equity share.

For the March quarter, the combined net sales climbed by 10.9% to 8,750.8 crore from 7,889.9 crore.

Asian Paints Q4 result: Net profit up 45% to ₹1,234 crore, dividend declared

According to Preeyam Tolia, Senior Research Analyst, Axis Securities, Asian Paints’ result was strong, led by double-digit volume growth. However, the EBITDA margins saw significant beat, primarily led by better-than-expected gross margin expansion due to lower raw material prices.

“Going forward, we could see margin recovery due to lower raw material prices and cost-efficiency measures. However, competition in the paint sector will be key to watch out for, as earnings will likely remain volatile. In the long term, we remain positive on Asian Paints as the recent announcement of setting up (a) a Vinyl Acetate Ethylene Emulsion (VAE) & Vinyl Acetate Monomer (VAM) plant, (b) a White Cement facility through Joint Venture in Fujairah, UAE, (c) Expanding manufacturing footprint, and d) launching differentiated next-gen nanotechnology based emulsions and waterproofing products is a step in the right direction to full proof next leg of growth and protect the market share in the long run,” said Preeyam.

Let’s look at the views and ratings of the domestic brokerages.

Nirmal Bang Institutional Equities Research

According to the brokerage, the company posted a strong set of results for the fourth quarter of FY23. While revenue was in line with its and consensus expectations, operating margin, at 21.2%, was higher than expected by about 190 basis points/180 basis points. The domestic decorative paint industry saw a robust 16% volume rise for the company. Compared to the previous two quarters, growth in the premium and luxury segment accelerated in 4QFY23.

“Going forward, while APNT remains optimistic about the demand scenario and is targeting double digit volume growth in 1QFY24, the return of unorganised competition and likely negative realisation on a steep base of price increases in recent years will weigh on topline growth. EBITDA margin guidance was maintained at 18-20% despite the beat in 4QFY23. Changes to model have led to 5.5%/12.5% upward revision in our FY24E/FY25E EPS owing to better than expected volume momentum. We value the company at 50x FY25 EPS, arriving at a traget price of ₹3,045 and maintain our ‘ACCUMULATE’ rating on the stock.

Nuvama Institutional Equities

The brokerage claims that while the company’s Q4FY23 revenue (up 11.3% YoY) was in line with expectations, EBITDA (increased 29.2% YoY) and PAT (up 32.9% YoY) exceeded forecasts. The volume of the decorative business increased 16% YoY, suggesting significant market share gains. The first quarter’s demand has been reasonable for the firm, and the company is now aiming for double-digit volume growth.

“We expect double-digit decorative volume growth to sustain, riding a potential demand shift from the unorganised segment along with an improving margin profile. We are raising FY24E/25E EPS by 5.2%/7.2%, which yields a target price of ₹3,880 (earlier ₹3,615). Inspite of Grasim’s entry after nine months, we maintain a strong ‘BUY’,” said the brokerage.

Motilal Oswal Financial Services Ltd

The company posted significant volume growth of close to 14% in FY23 and roughly 16% in 4QFY23, according to the brokerage. In addition, the management reported that all three market segments—economy, premium, and luxury—saw double-digit growth, with both urban and rural markets doing well.

A decrease in raw material costs, improved sourcing practises, and a good product mix all contributed to an increase in gross margin. The brokerage anticipate gross margin to be at normative levels given the more-or-less consistent raw material prices. EBITDA margin has been projected by the management to be in the 18–20% range.

“Although sharp input cost reductions could lead to healthy earnings growth, the company’s valuations are fair at 57.8xFY24E and 50.3xFY25E EPS. We retain our Neutral rating with a target price of ₹3,120,” said the brokerage.

ICICI Direct Research

“We believe Asian Paints reported a strong performance in Q4FY23 led by double digit volume growth. Even on the margin front, a sequential recovery in margin is encouraging. The exit EBITDA margin at about 21% is almost near its peak level margin clocked in FY22. This was largely driven by benign raw material prices and better operating leverage. For FY23, revenue came in higher by nearly 19% YoY to ₹34,488 crore supported by about 14% volume growth YoY led by strong demand for decorative paints. Asian Paints was able to benefit from declining raw material prices, which led to expansion of margins,” said the brokerage.

Asian Paints Q4 results beat estimates; should investors buy this paint stock?