MOSL: ASIAN PAINTS (Neutral)-Stronger than expected recovery; demand outlook healthy
(APNT IN, Mkt Cap USD40.6b, CMP INR3159, TP INR3070, 3% Downside, Neutral)(APNT IN, Mkt Cap USD40.6b, CMP INR3159, TP INR3070, 3% Downside, Neutral)
- Despite sales being significantly affected in May’21 due to the nationwide lockdown, sales were able to rebound sharply in Jun’21, abetted by significant benefits on account of pent up demand. This led to a significant beat on sales, EBITDA, and PAT v/s our expectations, despite materially higher than expected gross and EBITDA margin pressure.
- While YoY growth numbers can be misleading due to the sharp sales/EBITDA/PAT decline of 43%/58%/67% witnessed in the base quarter, a 9.4% sales growth over 1QFY20 was impressive given the lockdown during 1QFY22. EBITDA/PAT was, however, down ~28%/23% over 1QFY20 levels because of the ongoing sharp material cost inflation.
- Demand outlook remains healthy as the reported number of COVID-19 cases continue to decline significantly week after week. APNT has reported a commendable bounce back in FY21, ending up with positive sales growth of 7% for the full year (despite a 43% sales decline in 1QFY21) as well as in 1QFY22, despite the significant impact of the lockdown from mid-Apr’21 to the end of May’21. Rich valuations of 69.5x FY23E EPS prevent us from taking a more constructive call on the stock. We maintain our Neutral rating.
Asian Paints is engaged in manufacturing of a range of decorative paints, varnishes, enamels, and black & synthetic resins. Co., through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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