Target: ₹3,691
CMP: ₹3,346.25
Asian Paints has maintained double digit volume growth in Q1-FY24 of 10 per cent YoY, aided by improving rural demand. While revenue grew by 6.7 per cent YoY in Q1FY24. EBITDA margin expanded by 502bps to 23.1 per cent, supported by a fall in raw material prices and efficient sourcing of raw materials.
Robust demand and expansion in the distribution network supported the decorative volumes, while industrial paint demand was supported by the Auto segments. Good progress in the monsoon and a longer festival season augur well for peak season demand.
Superior product mix and comfort with moderating raw material prices bode well for profitability. We increase FY24 & FY25 earnings forecasts by 5 per cent/2 per cent, respectively, in expectation of margin expansion.
Maintained strong growth in smartcare, waterproofing, premium wood finishes, enamels, and economy emulsions. A robust expansion of the distribution footprint, catering to almost 1.6 lakh retail touchpoints, added 6,000 retail touchpoints in Q1. The home decor segment is contributing about 4 per cent of decorative revenue, and the company is focusing on increasing the mix to 8-10 per cent in the medium term.
We revise our rating to Buy with a TP of ₹3,691, based on a P/E of 60x on FY25 EPS.