Asian Paints reports strong Q3 earnings: Should you buy, sell, hold?

Asian Paints shares climbed 1.66 percent in opening but immediately fell nearly a percent, and further recovered to trade flat on Wednesday as brokerages feel strong Q3 earnings performance seems to be priced in but most of them maintained positive stance and some of them increased price target on hopes of good earnings ahead.

The stock was quoting at Rs 1,408, up Rs 1.45, or 0.10 percent on the BSE at 10:34 hours IST. It rallied 17 percent in last three months and 20 percent in last one year.

The paint maker reported a 14 percent on-year increase in third quarter profit at Rs 647 crore, driven by strong topline and operational growth. Consolidated revenue grew 24.3 percent to Rs 5,294 crore with double-digit volume growth in decorative business segment.

At operating level, consolidated EBITDA (earnings before interest, tax, depreciation and amortisation) jumped 17 percent YoY to Rs 1,043.2 crore, but margin in Q3 contracted to 19.7 percent against 20.9 percent in same period last year on account of the higher raw material prices.

Here is the analysis of earnings by brokerage houses:

Deutsche Bank: Buy | Target: Rs 1,600 | Return: 14%

Company reported one of the strongest quarters in eight years. The research house expects the convergence of multiple tailwinds to drive the industry recovery and sees earnings CAGR of 21 percent over FY19-21.

CLSA: Outperform | Target: Rs 1,565 | Return: 11%

CLSA also said it was a blockbuster quarter for the paint maker with decorative paint volumes much better than its forecast.

It slightly tweaked earnings estimates & retained target price of Rs 1,565.

Jefferies: Buy | Target: Rs 1,620 | Return: 15%

Jefferies, too, said Q3 revenue/EBITDA growth came ahead of estimates while Q3 net profit was in-line with estimates.

Decorative volume growth of 23 percent YoY is robust & is a reflection of market share gain, said the research house which increased EPS estimates for FY20 & FY21 by over 6 percent to factor better margin.

Jefferies expects Asian Paints to sustain strong trajectory of volume growth. It has raised price target to Rs 1,620 from Rs 1,400 earlier.

Macquarie: Upgraded to Outperform | Target: Rs 1,580 | Return: 12%

Macquarie upgraded Asian Paints to outperform rating post December quarter results and also raised its 12-month target price to Rs 1,580 from Rs 1,180 earlier.

Volume growth has picked up significantly, and the volume growth outlook has also improved which is a positive sign.

The recent price increases with falling input costs will improve margins, said the Macquarie note. The global investment bank also raised FY19-21 EPS estimates by 7-16 percent. The full effect of lower GST rates yet to play out, added the note.

Citi: Neutral | Target: Rs 1,500 | Return: 7%

Citi also raised price target sharply to Rs 1,500 from Rs 1,255 earlier as it increased estimates by 4-6 percent accounting for stronger volumes and recent price hikes.

It sees 15 / 16 percent consolidated revenue/EPS CAGR over FY18-21 and believes medium-term upsides are well reflected in stock valuations. Hence, it has neutral call on the stock.

Disclaimer:-The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.

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