Demand strong ahead of festive and wedding season – Asian Paints

Update on the Indian Equity Market:
On Tuesday, Nifty ended 1.2% higher at 11,813 led by the financial & metal stocks. The top gainers for Nifty 50 were ICICI Bank (+6.7%), Hindalco (+5.1%) and SBI (+4.3%) while the losing stocks for the day UPL (-6.6%), NTPC (-3.8%) and Reliance (-1.3%). Top gaining sectors were Bank (+3.2%), Financial Services (+3.1%) and Pvt Bank (+3.1%) while the losing sectors for the day were Realty (-2.3%), and Media (-0.3%).

Edited excerpts of an interview with Mr Amit Syngle, MD & CEO, Asian Paints; dated 02nd November 2020 from CNBCTV18:

Demand has been buoyant in the festive season, according to Mr Syngle. He further added that staying at home has made people desire home improvement.

The Company is seeing a very strong growth trend because of the festivals coming in with the wedding season which is also around. So both these factors are giving very strong flavour to the market and that is the trend they are seeing in October as well.

Mr Syngle said that demand in tier-II, III and IV cities has been exceptional. The luxury segment in rural areas was picking up too.

The company sees demand from metros close to about 85% of the pre-COVID levels. For Tier-III and tier-IV, it sees a strong jump in terms of demand even better than pre-COVID times.

Mr Syngle added that the home décor business was growing much faster on a low base.

According to him, Asian Paints is not about just owning the walls, but space between the walls. The Company sees that trend coming in strongly and he sees a definite pick up in September in terms of people embellishing their homes not only with respect to walls but even with respect to the other areas which fill up space in the home.
Asian Paints is open to acquisitions that will bring in synergistic benefits.

Talking about the quarterly result he said, 3Q margins may be better than 2Q on stable inputs. The Company has lately witnessed input costs moving up due to demand.

Consensus Estimate: (Source: market screener website)

The closing price of Asian Paints Ltd was ₹ 2,158/- as of 03-November-2020. It traded at 74x/ 52x/51x the consensus book value estimate of ₹ 29.2/36.4/42.4 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 2,086/- implies a PE multiple of 49x on FY23E EPS of ₹ 42.4/-.

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