February 21, 2024

KR Choksey’s research report on Asian Paints

For Q3FY24, APNT reported revenue of INR 91,031 Mn, a growth of 5.4% YoY/ 7.4% QoQ. Revenue was in line with our estimate. For 9MFY24, revenue grew by 4.1% YoY to INR 2,67,640 Mn. Q3FY24 growth was supported by the extended festive season, however there was some relative moderation in demand in the latter part of the quarter. APNT saw some recovery in the rural markets. Gross margin expanded by 504 bps YoY/ 24 bps QoQ in the quarter as raw material prices saw further deflation of 0.2% QoQ. The gross margins inched up despite a 1.3% price decrease taken in the portfolio. In 9MFY24, the gross margin expanded by 595 bps YoY. EBITDA for the quarter grew by 27.6% YoY/ 19.8% QoQ to INR 20,561 Mn and was 3.1% higher than our estimate due to lower employee and other expenses. EBITDA margin expanded by 393 bps YoY/ 234 bps QoQ to 22.6%. EBITDA margin expansion was driven by material cost softening, growth in luxury products, and operating, sourcing and formulation efficiencies. For 9MFY24, EBITDA grew by 34.1% YoY to INR 58,936 Mn while EBITDA margin expanded by 492 bps YoY to 22.0%. PAT for the quarter was at INR 14,477 Mn, reporting a growth of 35.0% YoY/ 20.1% QoQ. PAT was 2.7% higher than our estimate, flowing down from the higher EBITDA. PAT for 9MFY24 grew by 46.3% YoY to INR 42,035 Mn. While there were no exceptional items for the quarter or comparable quarters, on a 9MFY24 basis, growth in Adj. PAT was 45.1% YoY.

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Outlook

We make small adjustments to our FY24E/ FY25E EPS of +1.1%/ -1.3% respectively, as we factor in the strong margin performance in Q3FY24 but reduce our revenue assumption slightly. We introduce our FY26E estimates. We expect Revenue/ EBITDA/ Adj. PAT to grow at 10.0%/ 14.6%/ 15.4% CAGR, respectively, between FY23-26E. The share currently trades at 54.4x/ 52.4x/ 47.5x FY24E/ FY25E/ FY26E Adj. EPS, respectively. Since our last report, the share price has increased by 5.6%. We roll over our valuation to FY26E and apply a P/E multiple of 52x (earlier 55x on FY25E EPS) on FY26E EPS of INR 66.5 to arrive at a target price of INR 3,460 (INR 3,365 earlier); an upside potential of 9.4%. Accordingly, we maintain our “ACCUMULATE” rating on the shares of Asian Paints Ltd.

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Asian Paints – 19012024 – kr