Asian Paints share price soars 1.5% after strong Q1 result, but analysts remain bearish

Asian Paints reported a strong growth in net profit in the April-June quarter.

Asian Paints share price soars 1.5% after strong Q1 result, but analysts remain bearish
Asian Paints share price was up in the green on Wednesday.

Asian Paints share price rose 1.5% on Wednesday morning, a day after the company reported its April-June quarter earnings. Asian paints reported a massive 80.4% rise in consolidated net profit of Rs 1,036 crore in the quarter under review. However, analysts are not too keen on buying the stock and are bearish in their views. “Even as Asian Paints is strengthening its dominance in decorative paints, rapidly scaling adjacencies and RM price outlook is turning favourable, it could go through a year or two of muted earnings growth starting FY2025E as Grasim’s aggressive foray would inevitably weigh on industry profitability,” said Kotak Securities while adding that risk-reward is not favourable. Asian Paints hit a high of Rs 3,156 per share.

Strong but will it sustain?

Asian Paints has strengthened its dominance and market share in decorative paints and is rapidly scaling up adjacencies such as waterproofing and Home Décor. “We expect this momentum to continue and expect APNT to defend its market share better (post-Grasim’s entry) as compared to peers. Yet, in its bid to defend market share, we expect Asian Paints to deliberately operate at lower GM, increase dealer incentives and media intensity,” Kotka Securities said. 

Brokerage firm Motilal Oswal said they expect RoCE to improve going ahead, however, caution that it will still be lower than the 30-40% recorded in the first half of the decade gone by. “We remain cautious as the sector may not enjoy the higher multiples of the past. APNT has delivered 11.6% earnings CAGR over the past five years (FY17-22), while the stock price has delivered 24.1% CAGR, implying a significant re-rating,” they added.

Too expensive

Even with growth in the top line, the stock remains expensive, according to analysts. Kotak Securities said that Asian Paints trades at 55X FY2024E PE and that the stock does not offer upside given uncertainty starting FY2025E. Motilal Oswal analysts view the stock as expensive at expensive ~50.9x FY24E P/E.

Target price and rating

HDFC Securities has a ‘Sell’ rating on the scrip with a target price of Rs 2,700 per share, implying 50x Jun-23 P/E. The target price has been upped from Rs 2,600 earlier. 

Kotak Securities has pinned a fair value of Rs 2,950 per share, valuing the stock at  51X Sep-24E PE with a ‘Reduce’ rating.

Analysts at Motilal Oswal have a ‘Neutral’ rating with a target price of Rs 3,170 per share.

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