Asian Paints’ Low Volume Growth Disappointing, Brokerages Say

Most brokerages were disappointed by Asian Paints Ltd. low volume growth in the three-month period ending December. The country’s largest paint maker met analysts’ expectations with its quarterly net income but posted a single-digit growth in volumes for a second straight quarter.

Here's what brokerages had to say about Asian Paints post third quarter earnings:

Morgan Stanley

• Maintained ‘Outperform’ with a target price of Rs 1,400, implying a potential upside of 19 percent from the last regular trade.
• The key disappointment for the quarter was single-digit domestic volume growth. We expect the stock to react negatively to December quarter results.
• The stock is a beneficiary of market share gains for the organised players following Goods and Services Tax implementation and a play on a pickup in discretionary consumption.
• Weak domestic growth volume trends may impact near-term stock performance
• Any correction from current levels should be used as an opportunity for long-term investors to build positions.

Credit Suisse

• Maintained ‘Underperform’; raised target price to Rs 1,100 from Rs 1,060, implying a potential downside of 6.4 percent from the last regular trade.
• Volume growth significantly below expectations.
• Competitors continue to grow volumes faster.
• Management was cautiously optimistic as December growth had been good.
• Operating income growth was driven by tightening fixed costs, lowering marketing spends and GST savings.
• Raw material costs were firming up; Needs to take a price hike to stem gross margin decline.

Deutsche Bank

• Maintained ‘Hold’, adjusted target price to Rs 1,200 from Rs 1,194, implying a potential upside of 2 percent from the last regular trade.
• Margin contraction due to losses from new businesses is a downside risk.
• The decline in TiO2 prices and currency depreciation are upside risks.

Citi

• Maintained ‘Sell’ rating.
• Volume growth during the previous quarter disappointed; profit remained in line.
• Will watch out for trends in market share, news flow on possible price hikes in context of the current input cost scenario, and any possible changes in the taxation regime.

Phillip Capital

• Maintained ‘Neutral’; raised target price to Rs 1,250 from Rs 1,215, implying a potential upside of 6.3 percent from the last regular trade.
• Consolidated net sales were lower than expectations because of slower volume growth. Volume growth was in the mid-single digits.
• Demand scenario poses a major challenge. Rural growth has been higher than urban for the last three years, and this seems to be sustaining.
• Considering the pressure on volume growth, cut estimates for the current and next fiscal to 7.5 percent and 9 percent, respectively, from 10 percent and 12 percent, respectively.
• Cut earnings estimates for the current and next fiscal by 1 percent and 2 percent, respectively.

IDFC Securities

• Maintained ‘Outperform’; cut the target price to Rs 1,262, implying a potential upside of 7.3 percent from the last regular trade.
• Volume missed estimates in the previous quarter; lower costs drive earnings growth.
• Volume growth of 6 percent for the quarter is disappointing.
• Cost management initiatives and better mix resulted in strong margin improvement.
• Expect an uptick in volume driven by favourable base and improving demand.
• Expect price hikes to mitigate input cost pressure.
• Market share loss over last three quarters is a concern.