Reduce Asian Paints Ltd for the Target Rs. 2,448 By Prabhudas Liladhar Capital Ltd
Quick Pointers:
* Value-volume difference to be maintained at 4-5%
* Management guided for mid-single digit value growth for FY26.
We raise our FY26/FY27/FY28 EPS estimates by 3.4%/1.4%/4.7% given 1) a healthy demand outlook in 2H, supported by the upcoming wedding season; 2) commissioning of the VAM plant, is expected to aid gross margin expansion from FY28 onwards(~50-75bps); and 3) intensified marketing efforts with a focus on innovation and regional activation strategy to strengthen brand presence & growth in a competitive market. We believe normal monsoon, recent tax reductions, benign inflation, and higher disposable income from the recent GST cut across consumer products will boost consumption trends and sustain demand recovery into 2HFY26.
However, we remain cautious on APNT in medium term given 1) sustained competitive intensity, particularly in the decorative paints segment, which is expected to limit margin expansion; 2) a ~4% volume value gap due to deteriorating mix in paints and higher growth in Putty, Construction chemicals and waterproofing , suggesting sales growth to likely remain in the mid-single-digit range; and 3) slower than anticipated scale up in the Bath, Kitchen, and Home Décor businesses amid muted demand and heightened competition. We estimate a CAGR of 5.8% in revenue and 8.4% in EPS over FY26-28. We roll over to Sep27 EPS with 48x multiple and arrived at TP of Rs2448 (2248 earlier, on 46xJun27). APNT trades at 54.3xSepFY27 EPS, which offers little room for upside given competitive context and 20% run up in stock price in the past month. Retain reduce.
Decorative volume grew 10.9%; Consol Revenues grew by 6.3% YoY to Rs85.3bn (PLe: Rs84.28bn. Consensus Rs81.5bn). Decorative volume grew by 10.9%; while Industrial Coatings business registered 6.7% growth. Gross margins expanded by 242bps YoY to 43.2% (PLE 43.6%). EBITDA grew by 21.3% YoY to Rs15bn (PLe:Rs14.5bn, Consensus 13.4bn) Margins expanded by 218bps YoY to 17.6% (PLe:17.2%). Adj. PAT grew by 8.7% YoY to Rs9.9bn (PLe:Rs9.54bn, consensus Rs8.88bn)
Standalone Revenues grew by 7.1% YoY to Rs73.6bn; Gross margins expanded by 249bps YoY to 43.9%; EBITDA margins expanded by 214bps YoY to 18.5%; Adj. PAT grew by 19.1% YoY to Rs9.6bn
Other Highlights
* Industrial Business grew 6.7% in Q2FY26 led by strong performance in Auto & Protective coating segments
* Bath fittings sales decreased by 4.7% to Rs793mn, PBT loss was flat at Rs40mn YoY
* APPPG sales increased 10.2% YoY to Rs2926mn, PBT came at 259mn v/s 185mn in Q2FY25
* PPG AP sales increased 13.3% to 5943mn, PBT came at Rs1028mn as against 825mn in Q2FY25
* International business registered a growth of 9.9% led by traction in South Asia, Middle east and Africa.
Concall Takeaways: 1)2Q delivered strong performance with 10.9% volume growth as consumer sentiments improved led by supportive policies & early festive season. 2) Demand was seen across rural and urban regions as company focused on regional activation and aggressive marketing. 3) Q3 is seeing improvement in demand, especially in urban market led by festive and wedding season. 4) Automotive and industrial coating continue to see traction with 6.7% value growth in Q2. 5) Home décor businesses continue to face headwinds while beautiful homes are seeing good traction with 73 stores as of Q2FY26 6) In international business key units of Nepal, Sri Lanka and UAE driving growth led by focus on prelux and water proofing categories yielding gains. 7) White Cement plant commissioned successfully with VAM-VAE Project remains on Track. 8) APNT saw 1.6% deflation in Q2, it expects RM prices to remain stable while Geopolitical uncertainty/ exchange volatility may weigh on prices. 9) Competitive intensity remains at elevated levels with ANPT to focus on innovation and invest behind brand growth. 10) In Q2FY26, Projects / Institutional Business did well across segments with strong demand from builders, factories and government. 11) Service business is seeing good traction with 650+ town now serviceable and 11+ lakh customers. 12) Water proofing business to see double digit growth in medium term. 13) Management expects mid- single digiti value growth for FY26 with value volume difference to be at~4-5%?
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