Hold Asian Paints; target of Rs 2800: Emkay Global Financial

Emkay Global Financial recommended hold rating on Asian Paints with a target price of Rs 2800 in its research report date October 22, 2021.

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Emkay Global Financial’s report on Asian Paints

APNT reported a big earnings miss (33% below estimates) due to a sharp fall in margins. Gross and operating margins fell ~10ppts due to the steep rise in input costs and slower price increases. Growth momentum was stronger as sales rose 33% (9% beat). In order to improve margins, management plans to expedite price increases and focus on formulation efficiencies. APNT expects margins to return to the normal range of 18-20% by Q4. We hence trim our margin forecasts from ~22% to 18.3%/19.8% for FY23/24. Growth momentum remained robust as APNT significantly outpaced most consumer peers in volume/sales growth. Bullish commentary, aggressive initiatives on portfolio and distribution expansion and revival in construction/industrial demand offer a strong outlook.

Outlook

With input inflation getting back to the peak, FY21 margins appear challenging. We raise sales estimates by 6%, factoring in the strong growth momentum, but reduce margin assumptions. As a result, we cut earnings estimates by 23%/13%/7% for FY22/23/24. Retain Hold with a revised TP of Rs2,800 (Rs2,960 earlier) based on 55x Dec’23E EPS.

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