Asian Paints share price was trading lower by three per cent on Wednesday morning, a day after the company missed estimates as profit flatlined. The stock opened a tad higher at Rs 3,085.05 against the previous close of Rs 3,083.70. However, it erased all early gains and tanked over 3 per cent to Rs 2,980.
Asian Paints on May 10 reported half a per cent year-on-year growth in consolidated profit at Rs 874 crore for the quarter ended March 2022, as higher input costs pressured operating profit margin. Exceptional loss of Rs 115 crore also hit profit growth. The CNBC-TV18 poll estimate for the bottom line was Rs 913 crore. Revenue from operations grew 18.7 percent to Rs 7,893 crore with domestic decorative business registering eight percent volume growth.
“It was yet another quarter of solid and strong double-digit value growth across all businesses despite uncertainty around COVID, macroeconomic challenges, and heightened geopolitical tensions,” Amit Syngle, managing director and chief executive, said.
He further said the International business managed to deliver double-digit revenue growth for the quarter despite severe challenges in key markets.
Asian Paints – What Should Investors do?
According to Motilal Oswal, the volume growth was affected in Jan’22 due to the Omicron COVID wave. It clocked double-digit volume growth in Feb-Mar’22. Though growth in the International business was good in 4QFY22, profitability was affected by its inability to fully pass on the increase in cost and the currency devaluation in Sri Lanka, Egypt, and Ethiopia, which is likely to continue.
“While the demand outlook is better than FMCG peers, despite high price increases, valuations of 54.4x FY24 are expensive. We maintain our Neutral rating with a target price of Rs 3,120 per share,” it added.
Deven Choksey of KRChoksey told CNBC-TV18 that the company’s management is definitely looking confident about its implemented strategy. “Overall, we consider Asian Paints a stable company. Valuation-wise, this has never been cheap. If for some reason the market gives the correction in the price, I think it will be a buying opportunity,” he says.
Brokerage firm Sharekhan has a buy call on the stock with a target of Rs 3,689, an upside of 23 percent: “Asian Paints’ results were largely in line with expectations with an eight percent rise in volumes of the decorative paints business and consolidated OPM (operating profit margin) of 18.3 percent. Revenue and profit after tax (PAT) grew 18 and 10 percent year on year respectively.”
“Though volatile raw material prices will keep margins stressed in the near term, the management is confident of achieving OPM of 18-20 percent once raw material inflation stabilises while planned initiatives and better mix will support profitability in the medium term. The stock trades at 72/55x its FY2023/34 EPS. We maintain a buy on the stock with an unchanged price target of Rs 3,689,” it said.
Domestic research and broking firm HDFC Securities has maintained a sell call on the stock with a target of Rs 2,550, a downside of 17 percent.
“Asian Paints’ performance remains the most impressive among top three players. We suspect future price hikes are likely to lag RM inflation, as demand elasticity may get tested. Hence, we marginally tone down our FY23/24 earnings per share (EPS) estimates by 3.6/2 percent to account for lower GM (gross margin) and maintain our sell rating on the stock with a DCF-based target of Rs 2,550 per share, implying 53x FY24 price to earnings (P/E),” said Varun Lohchab, head – institutional research, HDFC Securities.
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