Asian Paints Q3 results came in less-than-market expectations, leading to a 3 per cent correction on the counter on Thursday. Analysts said a re-rating on the counter looks unlikely but one can accumulate stock on dips for long-term gains.
Kaustubh Pawaskar, Analyst at Sharekhan, said Asian Paint’s performance missed estimates, with revenues and PAT growing 1.3 per cent and 7 per cent, respectively with sales volume in decorative paints business remaining almost flat.
Pawaskar said gross margins and the Ebitda margins improved on a sequential basis, in line with expectations.
“If commodity prices decline from current level, it will help the company post better margins ahead and also help in taking relevant pricing actions to improve volume growth ahead. The stock has underperformed in the recent past and any further correction can be considered as a good opportunity to accumulate quality consumer goods company from long term perspective,” he said.
Amnish Aggarwal, Head of Research at Prabhudas Lilladher said Asian Paints’ December quarter results below his and street estimates on all fronts. Volumes were flat YoY which was impacted by high base and extended monsoons in October affected the festive demand, he said.
“Margin recovery is a positive which we believe can continue into March quarter as well. However, Asian Paints might settle for margins lower than historical levels, given the expected entry of Grasim in paints sector. We remain positive on Asian Paints. However a re-rating looks unlikely given premium valuations and likely disruption due to the entry of a large player,” Aggarwal said.
Prabhudas Lilladher has ‘accumulate’ rating on the stock with a target of Rs 3,326.
Manish Chowdhury, Head of research at Stoxbox said the paints maker reported muted revenue growth, resulting from a flat volume.
Chowdhury said the extended monsoon in October hindered Asian Paints business in the peak festive season along with weak performance in the Bath and Kitchen business this quarter.
The industrial business performed well and reported strong growth in Auto OE and General Industrial segments. Also, with the prices of key raw materials declining and higher operational efficiency, the operating margins of the company showed improvement on a sequential as well as on yearly basis.
On the international business front, the Middle East and Africa delivered a strong growth but macro-challenges in Sri Lanka and Bangladesh affected the business, Chowdhury said.
Earlier today, Asian Paints reported a 5.6 per cent year-on-year (YoY) consolidated net profit after minority at Rs 1,072.67 crore compared with Rs 1,015.69 crore in the corresponding quarter last year. The paints maker said its consolidated sales for the quarter rose 1.7 per cent to Rs 8,607.50 crore compared with Rs 8,462.15 crore in the same quarter last year.
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