Asian Paints Shares Fall After Q3 Results But Brokerages Remain Bullish

Shares of Asian Paints Ltd. fell to the lowest in nearly two weeks, a day after the firm reported its December quarter results.

But most analysts remained bullish on the stock, on the back of double-digit volume growth for an eighth successive quarter and better-than-anticipated margins aided by lower input costs.

That comes even as the paintmaker’s revenue grew a mere 3 percent in the quarter ended December—the lowest since the third quarter of 2016-17—due to weak demand.

Here’s what brokerages made of Asian Paints’ Q3 results:

UBS

• Maintain ‘Buy’ with target price of Rs 2,120.
• Grows decorative volumes by 10-11 percent in third quarter of FY20.
• Margin beat helps meet profit estimates.
• Growth in rural portfolio a green shoot or replacement demand.

HSBC

• Maintain ‘Buy’; Cut target price to Rs 2,000 from Rs 2,060.
• Delivers low double-digit volume growth defying slowdown.
• Volume growth aided by deliberate push on the economy products.
• Revenue growth lacklustre, but still manages to deliver margin expansion.
• Strategy is sensible and revenue growth too will accelerate as demand recovers.

Prabhudas Lilladher

• Maintain ‘Accumulate’; Cut target price to Rs 1,815 from Rs 1,822.
• Reported eighth consecutive quarter of double-digit volume growth.
• Success in new entry-level paints at 15-20 percent; lower prices drive volumes.
• Another 0.25 percent price cut; total 1 percent cut in FY20, mainly in solvent based paints.

Edelweiss

• Maintain ‘Buy’ with target price of Rs 2,075.
• Revenue growth decelerates; benign input cost spurs margins.
• Estimate double-digit volume growth to continue aided by shift from unorganised.
• Operating leverage and pricing power to help company maintain margins.

Phillip Capital

• Maintain ‘Buy’ with target price of Rs 2,100.
• Economy products, higher discounting drives volume growth.
• Higher discounting and A&P spend limit Ebitda margin expansion.
• Expect volume growth to taper down but benign input cost and new facilities to negate those headwinds.
• Continue to maintain Asian Paints as high-conviction ‘BUY’.

Emkay

• Maintain ‘Hold’; hikes target price to Rs 1,820 from Rs 1,800.
• Weak mix and higher discounting resulted in lower sales growth.
• Input inflation remains low, but margin gains are likely to be lower.
• Slower growth and rich valuations keep us neutral on the stock.
• Key risks: continued slowdown in consumer demand.