Asian Paints share cost fell 2.7% on Monday morning to trade at Rs 2,525 per share. With this, the stock is down 9% due to the fact January 21 or 3 trading sessions. The fall comes in spite of a stellar quarterly earnings overall performance posted by the firm exactly where its net profit soared 62% on-year basis to Rs 1,238 crore, beating street expectations. However, the fall in stock cost has not bettered brokerage firms from upgrading the target cost for Asian Paints. Global brokerages such as Morgan Stanley and Credit Suisse think the stock will outperform and therefore have improved the target cost of the very same.
Pent up demand to continue
“We have been arguing that Asian Paints is well-positioned for re-opening,” stated analysts at Morgan Stanley in a current note. They added that the robust benefits show more quickly demand recovery in decorative paints segment and reflect a new rental leasing cycle, a robust rural economy, and a pickup in urban demand that must help in solution mix improvement. Asian Paints saw robust development in tier-2/3/4 markets the firm also recorded a robust recovery in tier-1 and metro cities.
Analysts at Credit Suisse have raised their FY21-23E EPS for Asian Paints by 4-14% and target many to 62x. The brokerage firm stated there may well be more pent up demand that tends to make its way to Asian Paints as in the initial nine months of the existing fiscal revenues are nonetheless down 3%. Asian Paints could also undertake cost hikes in the existing quarter to adjust the improve in input charges. “We expect the paint industry to take price increases as there have been price declines in paints over the past 2-3 years, starting with the GST rate cut in 2018. We see no demand elasticity or competitive challenges in taking 5-10% price increases in FY22,” Credit Suisse stated.
Positives priced in?
While awaiting a battery entry point for the stock, Nomura has stated that the stock is pricing in positives for now. The brokerage firm added that the overall performance posted by Asian Paints was not all structural but driven by pent-up demand. “While pent-up demand is likely to continue to drive strong revenue growth for a couple of quarters (aided by a weak base), some of the other triggers will be absent in coming quarters, and growth will normalize,” they added.
Target rates
Nomura has downgraded the stock to ‘Neutral’, adding that most positives have been priced in. However, they worth Asian Paints at a P/E of 70x, implying a target cost of Rs 3,000 per share. Morgan Stanley has an ‘Outperform’ rating on the shares of Asian Paints and a target cost fo Rs 3,000. Similarly, Credit Suisse also sees upside possible for the stock with a target cost of Rs 3,000.
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