Asian Paints share price fell 3% since the company’s quarterly results failed to meet estimates on Tuesday (10 May). Asian Paints reported half a percent 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 stock fell over 1.5% today hit an intraday low of Rs 2,987 on BSE. Brokerages remain mixed on Asian Paint shares given that while the company is great in India’s decorative paints and some allied categories, it is yet to achieve meaningful success in diversification.
Should you buy, hold or sell Asian Paints shares?
Motilal Oswal: Neutral
Target price: Rs 3,120; Upside: 2%
According to analysts at Motilal Oswal Financial Services, Asian Paints’ 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,” the brokerage said.
Target price: Rs 3,689; Upside: 20%
Asian Paints Q4 results were largely in line with expectations with an 8% rise in volumes of the decorative paints business and consolidated OPM (operating profit margin) of 18.3%. Revenue and profit after tax (PAT) grew 18% and 10% 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,” the brokerage said.
HDFC Securities: Sell
Target price: Rs 2,550; downside: 16%
According to analysts at at HDFC Securities, Asian Paints’ performance remains the most impressive among top three players in the paint sector. “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 HDFC Securities.
Axis Securities: Hold
Target price: Rs 3,200; Upside: 4.7%
“We are impressed with the overall performance in Q4FY22 despite the challenging environment of weak consumer sentiments and inflation across the raw material basket. The management continues to focus on its execution capabilities towards increasing distribution reach, launching breakthrough innovative products, and expanding the Home Décor portfolio. However, the near-term challenge still persists and we would wait to see if the visibility of the near term performance sustains before we change our rating to BUY,” the brokerage said in its report. Axis Securities maintained its HOLD rating with an unchanged target price of Rs Rs 3,200 (57x FY24E EPS).
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