Asian Paints

24 Jan

Inflationary headwinds reducing, topline growth outperforms – Asian Paints



Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,149 (-2.7%). Among the sectoral indices REALTY (-5.9%), METAL (-5.2%), and MEDIA (-4.6%) were top losers, and there were no sectoral gainers. CIPLA (+2.9%), and ONGC (+0.9%) were the only gainers. BAJFINANCE (-6.4%), JSWSTEEL (-6.9%), and TATASTEEL (-5.9%) were among the top losers.

Excerpts from an interview of Mr. Amit Syngle, MD & CEO, Asian Paints with Economic Times dated 21st January 2022:

  • In 1HFY22 the company had taken a 7% hike and in Q3FY22, they had already taken two hikes in November and in December totaling about 15%. Quarter on quarter, the company had a very strong volume growth at 18% and value growth of 26%.
  • With a healthy topline growth quarter on quarter, the margins have gone up because of the price hike which has been taken and so has the EBITDA margins being impacted in a very strong way.
  • The company is on a very good footing now because they have taken the pressure of inflation head-on and raised prices to the tune of about 22% for the year so far. The next quarter looks good from the point of view of addressing the inflation by the company.
  • The price increases have been unprecedented. Notwithstanding that, the company has seen quite a strong volume growth as well as value growth because October and November were very good for the company given the festive period.
  • The COVID-19 pressure was off to that extent, the consumer sentiment was quite good even in December. The company got a little bit hit in the second fortnight of December because of the third wave emerging but overall the company saw very healthy volumes, very good value growth. The company has gained a good quantum of market share in the third quarter as seen forward.
  • People have been experiencing COVID for the last year and nine months and the experience has been that there is an impact on consumer sentiment, which happens immediately when such a wave starts. But overall, there is only a little bit of a deferment of sales because people do not put off their painting or the renovation cycles.
  • The company’s outlook is that while in January there might see some impact of price hike and COVID-19, going forward, in February and March, it expects to see recovery with sales coming back strongly.
  • Going forward, it sees the environment as still inflationary. Despite taking price hikes or the crude hitting high prices and as prices of some of the crude derivatives go higher, some prices of select raw materials might come down. So overall, it expects the impact of Q4 over Q3 to be mild but the environment would remain inflationary.

Asset Multiplier comments:

  • Asian Paints has been an undisputed market leader in the paints category, despite inflationary near-term headwinds. We believe the company is likely to outperform based on its strong brand image and execution capabilities.
  • The expected boom in real estate augurs well for the company as we are entering a multi-year cycle of developmental activity that’ll help the top line of the company.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Asian Paints was ₹ 3,155/- as of 24-January-2022.  It traded at 93x/67x/55x the consensus Earnings per share estimate of ₹ 34/47/57/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 3,380/- which implies a PE multiple of 59x on FY24E EPS of ₹ 57/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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25 Oct

Both urban and rural markets have shown strong recovery – Asian Paints

Update on the Indian Equity Market:

On Monday, NIFTY closed at 18,125 (+0.1%). Private bank (+2.2%), Bank (+2.2%), and Financial Services (+1.3%) were the sectorial gainers, while Realty (-2.8%), Auto (-1.8%), and Consumer Durables (-1.4%) were the losers. The top gainers in NIFTY50 were ICICI Bank (+11.5%), AXIS Bank (+3.5%), and ONGC (+2.7%). The top losers were BPCL (-3.3%), Bajaj Finserv (-3.3%), and SBI Life (-2.9%).

Excerpts of an interview with Mr. Amit Syngle, MD, and CEO of Asian Paints with ET Now on 22nd Oct 2021:

  • In 2QFY22, both value and volume growth has been very strong. Unlike FY21, Metro T1 and T2 cities have performed well this year. The demand sentiment in the bigger cities have been pretty good because they are growing rapidly compared to T3 and T4 cities.
  • The difference between value and volume growth is not much, and overall, both are healthy because of leeway with respect to the premium in the luxury products.
  • Real estate and construction have been picking up and that has contributed to the overall growth. Institutional markets also looking strong, though it cannot be attributed to pent up demand. During the quarter they have seen very healthy volume growth.
  • They feel that new demand has come in at this point of time. In Q1FY22, May was affected very badly but in June the growth was good.
  • Overall, the sentiments have been much better. The markets have been great and monsoons have provided very strong sentiments which may have contributed to a very strong volume growth.
  • Asian Paints has a strong presence in both rural and urban markets. They are expanding their business in rural markets aggressively in the last two years. The monsoon has been good and it is strongly reflecting on the whole agriculture income.
  • The trend shows in H1 was that while T1 and T2 cities have done well. The T3 and T4 cities have performed relatively lower but the overall growth has been quite satisfactory.
  • Increase in the prices of raw material is not only in India, it is happening across the world. Asian Paints took some pre-emptive actions in terms of taking price increase but they did not want to destabilise the markets.
  • In 2QFY22 the inflationary trends continued and they expect this inflationary trend continue well into Q3FY22 as well. This is really unprecedented in terms of what they have seen in last 40 years, they are taking one series of price increase to address margins issues.
  • They are looking at formulation efficiencies in a big way. They have done lots of work in last six months, bringing innovation in technology both in terms of formulation as well as manufacturing and that has given very good results.
  • They have taken an overall price increase of about 7.5% over the last six months. Going forward, the pace of price hikes would be a little bit higher.
  • Price increase is not the only strategy, the company will look at a lot of other areas so that they are able to improve the overall margin trajectory.
  • The price elasticity is more towards the economy set of products not towards the premium or luxury products. Overall price elasticity exists as far as demand in concern. They definitely see what they are going to balance is in terms of saying how do they take price hikes so that market sentiments not affected.

Asset Multiplier Comments

  • The paints sector is likely to deliver strong topline growth as the organized players have started gaining market share from the unorganized ones. This growth will be aided by opportunities in the rural market which offers good prospects after a good monsoon season.
  • In 2QFY22, Asian Paints missed street estimates on the bottom line due to a rise in raw material prices. Steep inflation in raw material prices impacted the operating margins. The Company is confident of turning around the situation in the coming quarter due to festive demand.

Consensus Estimate (Source: market screener websites)

  • The closing price of Asian Paints was ₹ 2,923/- as of 25-October-21. It traded at 89x/65x/53x the consensus EPS estimate of ₹ 32.8/45/54.6 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,076/- implies a PE multiple of 56x on FY24E EPS of ₹ 54.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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25 Jan

Double-digit growth to continue in 4QFY21 – Asian Paints

Update on Indian Equity Market:

Markets started the fresh week on a selling spree as Nifty closed the day 133 points lower at 14,239. Within the index, the gainers were led by GRASIM (5.9%), UPL (4.0%) and CIPLA (3.8%) while RELIANCE (-5.9%), INDUSINDBK (-5.5%) and HCLTECH (-3.8%) led the losing pack. Within the sectoral indices, PHARMA (1.7%), METAL (0.2%) and BANK (0.1%) were the only gainers while IT (-1.8%), AUTO (-0.8%) and REALTY (-0.8%) were the highest losers.

Excerpts of an interview with Mr Amit Syngle, MD & CEO- Asian Paints (ASIANPAINT) with CNBC TV18 dated 22nd January 2021:

  • 3QFY21 has been phenomenal as the company witnessed a YoY growth of more than 30%. The growth was achieved on the back of the Indian decorative segment which grew 32% YoY in volume terms and 26% in terms of value. 
  • All three months during 3QFY21 reported double-digit YoY volume growth. October grew fastest in terms of volumes. The company gained market share in the organized as well as the unorganized market. Metros, Tier-I and Tier-II contributed to a sizable chunk of growth.
  • He said that industrial and international segments picked up strongly from 2QFY21. The growth was seen across verticals.
  • The consumer sentiment continued to improve. The company expects to continue double-digit YoY volume growth in 4QFY21.
  • The industry is witnessing some pent demand which is difficult to quantify. The construction and real estate sector is also picking up which will add to the growth during the quarter.
  • He said that 4QFY21 may see an impact in terms of raw material inflation. The company is still expected to maintain the current level of margins in the quarter.

Consensus Estimate: (Source: market screener website)
• The closing price of ASIANPAINT was ₹ 2,521/- as of 25-January-2021. It traded at 80x/ 65x/ 56x the consensus earnings estimate of ₹ 31.5/ 38.7/ 45.3 for FY21E/FY22E/23E respectively.
• The Consensus price target of ASIANPAINT  was ₹ 2,525/- as of 25th January 2021 which is 56x of FY23E EPS estimate of ₹45.3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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04 Nov

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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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29 Jul

Confident of future as a lot of new demand has come in June – Asian Paints

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 169 pts (+1.5%) at 11,300.
Among the sectoral indices, AUTO (+3.2%), METAL (+2.2%) and IT (+2.4%) were top gainers while MEDIA (-0.2%) was the only loser.
Among the stocks, ULTRACEMCO (+7.0%), KOTAKBANK (+4.7%) and TCS (+4.7%) were the top gainers. ICICIBANK (-1.8%), INFRATEL (-1.6%) and NESTLEIND (-1.4%) were the top losers.

Confident of future as a lot of new demand has come in June – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director & Chief Executive Officer, Asian Paints with Economic Times dated 27th July, 2020:

We saw a lot of secondary demand come up across the cities and that has boosted our confidence that a lot of new demand has come in areas of painting, waterproofing and so on, says Amit Syngle, MD & CEO.

• His comments on 1QFY21 result: There was no business activity from 20th March to end of April due to the lockdown. The entire month of April was an absolute washout. A lot of pent up demand was seen in May and people had to look at some of those real pent up maintenance issues. Therefore, in May, there was very satisfying pent up demand across the country. However, a good part of it was seen in June, triggered by Asian Paint’s safe painting campaign which gave people confidence that it was safe to get a set of painters to get your house painted. A lot of secondary demand came up across the cities and that has boosted the company’s confidence that it was not only the pent up demand which we saw in May but a lot of new demand which came in both in the area of painting, waterproofing and so on. This was also led by another campaign which Asian Paints did with terrace waterproofing. A lot of demand which has come in the June is new paint demand and that has boosted confidence in the market.
• When asked about how confident he is of this new paint demand trend continuing he replied that the month of July has been more challenging in terms of the sporadic lockdown across various states. But till now, the indications have been good in terms of looking at how the paint demand is coming and he feels that today the trend is changing. Some of the tier one-tier two cities which were slow to kind of recover are recovering at a higher rate the surge was possibly shown at the smaller cities which were the tier three, tier four cities. He further added that there might be slowing down a little as Covid is spreading more into the hinterland but there is a balancing which is happening with respect to that and therefore the current indications are that volumes are still looking decent.
• When asked about the demand pattern of premium decoratives, he stated that some products are at the luxury and premium end and are also solutions based. If people are looking at that kind of an antibacterial protection for their homes, it is still value for money coming at the luxury end. But in general, there is a little bit of downtrading where people are coming down from the luxury end and looking at more premium products and upgrading far more strongly. A lot of discretionary spend is happening in terms of maintenance rather than absolutely décor. Therefore, he is of the view that a part of this painting has come in because people would like healthy and hygienic homes, fairly clean and beautiful homes
• His stated his views on pricing strategy: Overall, the company has been very cautious and is looking at ways and means in terms of better material costs, sourcing efficiencies and formulation efficiency. As of now, there is a little bit of neutrality coming because there is a rupee which has depreciated. Raw material prices are going up as demand comes back. Volatility will continue and he will be more focused in terms of internal efficiencies and going ahead, he doesn’t see any changes in terms of prices till the time there is a stability in terms of the environment we are in.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Asian Paints was ₹ 1,756/- as of 28-July-2020. It traded at 67x/ 51x/ 44x the consensus earnings estimate of ₹ 26.7/34.9/40.9 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 1,810/- implies a PE multiple of 44x on FY23E EPS of ₹ 40.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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06 May

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Update on the Indian Equity Market:

For the second consecutive day, the Nifty closed lower at 9,206 on Tuesday amid reports of stress among lenders when millions of borrowers are facing pandemic induced income loss. As a result, there were no sectoral gainers. PSU Bank (-3.3%), Realty (-2.9%), and Bank (-2.4%) were the top losing sectors. Among the stocks, the biggest gainers were Infratel (+3.6%), M&M (3.2%), and Powergrid (+2.9%). SBIN (-4.2%), Bajaj Finance (-3.8%), and Britannia (-3.6%) led the losers.

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Excerpts of an interview with Mr. Amit Syngle, MD & CEO, Asian Paints which aired on CNBC TV18 on 4th May 2020:

  • For the last 3-4 weeks, Asian Paints were under a complete lockdown. The lockdown 3.0 has offered some relaxation.
  • Some of the plants and warehouses have opened as shops for non-essential goods have been allowed to open. Most of their plants have opened but work at slightly reduced capacity.
  • Asian Paints has given buyers 45 days of credit and asked vendors for an extension as well. Talking about the liquidity position, he said stringent cost-cutting measures are being undertaken to preserve cash. There is comfortable liquidity going ahead and they do not foresee any problems in the coming period.
  • Asian Paints had announced their foray into the hand and surface sanitizer with the Viroprotek range of products. Talking about the development of this range, he said they have worked on the range in the last 10-15 days at the behest of the government and the Ministry of Health, and Ministry of Chemicals.
  • As a responsible and caring brand, they wanted to help the government and community and the shortage in the market was the motivation for entering this segment. They already have the Royal Health Shield, a range of antibacterial paint that ensures hygiene and bacteria control. So entry into the sanitizer range aligned with their objective.
  • They have been in the Health and Hygiene space for some time and have products in that range. In the near future, Viroprotek will be a part of the overall range.
  • To ensure reach to the right outlets and ensure adequate supply, their distribution segments will be activated.
  • Though initially entire production will be directed to the Government and NGO initiatives, sanitizers & surface cleaners will be part of Asian Paint’s portfolio in the future. They are looking to enter the service industry for sanitization in a very big way.
  • On the business plans going forward, he said they are watching and devising scenarios as to what will happen in these exceptional circumstances. There is no clarity in terms of how the situation envelops, and what is going to happen. Thus, depending on how the situation clears up and the market opens, plans will be made accordingly. It is difficult to give concrete plans as the entire environment is uncertain.
  • Talking about the top line, no action will be seen in 1QFY21. As per indications coming in, it will be a wipe off quarter. It is difficult to say how revenues will come in for the entire year.

Consensus Estimate: (Source: market screener website)

  • The closing price of Asian Paints Ltd was ₹ 1,618/- as of 05-May-2020.  It traded at 49.5x/ 41.6x the consensus EPS estimate of ₹ 32.7/ 38.9 for FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,822/- implies a PE multiple of 46.8x on FY22E EPS of ₹ 38.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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05 Aug

Asian Paints 1QFY20 result highlights: Performance beyond street estimates, uncertain about sustainability.

Dated: 25th July 2019

1QFY20 result:

  • Consolidated Revenue was Rs 51,306 mn, 17% higher YoY.
  • EBITDA was Rs 11,563 mn, 24% higher YoY. EBITDA margin reported at 22.5%, an improvement from 21.1% in 1QFY19.
  • Net Profit was Rs 6,721 mn, 18% higher YoY.

Management Commentary:

  • Asian Paints saw double-digit volume growth across segments. Lower value products like distemper and putty continue to grow faster than premium products. In 1QFY20, decorative paints segment in the Indian market grew in high double digits.
  • Asian Paints undertook aggressive channel push in 1QFY20 contributing to the higher revenue growth.
  • Growth in smaller towns has been much higher than metros.
  • EBITDA margin improvement came from benign raw material prices and a decrease in freight cost from the new plants in Vizag and Mysore.
  •  Employee costs in 1QFY20 fully reflect the incremental costs from new plants. Other expenses will grow as production ramps up.
  • Advertisement costs are generally lower in the 1st quarter. Some of the ad costs shifted from 1QFY20 to 4QFY19 due to IPL season.
  • Management is cautious about the growth going forward. Economic conditions remain challenging and may result in a negative impact on the coatings business. Uncertainty also exists in the International business due to developments in the Middle East.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 1,496/- on 25-Jul-19. It traded at 55x / 48x the consensus EPS for FY 20E / FY 21E EPS of Rs 27.3 / 30.9 respectively.
  • Consensus target price of Rs 1,516/- implies a PE of 49x on FY21E EPS of Rs 30.9.
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