Asian Paints - Steady Value Creator Offering Entry Opportunity: Anand Rathi

Anand Rathi Report

On industry interaction and channel checks, we expect Asian Paints Ltd.’s demand to rise, versus weak Q3 volumes. Lower input prices would help margins expand from Q4.

Despite new entries (JSW Paints Ltd.), no price wars have been seen, a concern among the investor community. With the Grasim entry, we don’t expect this to change as demand is expected to be steady and industry distribution is unlikely to accept price cut, which could curb all-round profitability.

The prolonged monsoon and early festivities curtailed Q3 volume growth, which rebounded in December and is expected to be healthy, per management. Our channel checks suggest some upswing in demand, post-November. But certain pockets saw keen competition from new dealers.

We acknowledge the rich valuations (53 times FY24E earnings per share), but forecast 17% earnings compound annual growth rate over FY23-25 aided by margin gain.

Paints companies have been the most consistent creators over the last three/five/10 years. This would continue, aided by steady earnings growth.

Risks: Sharp rise in input costs; entrants disrupting the industry, capturing considerable market share.

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