Asian Paints Q1 Results Review - Demand Outlook Healthy; Valuations Expensive: Motilal Oswal
In-line sales; better-than-expected margins.
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Motilal Oswal Report
Asian Paints Ltd. reported strong volume growth of 10% in Q1 FY24 (our estimate: 8%). The management attributed this growth to the strong performance of the economy and premium segments, although the luxury segment lagged behind.
Additionally, the company observed an improvement in rural markets, with rural and urban markets coming closer in terms of performance.
The increase in gross margin was attributed to the softening of raw material prices, efficient sourcing, and a favorable product mix. As raw material prices stabilize, the gross margin is expected to return to normal levels.
The management has given guidance for the Ebitda margin to be in the range of 18-20%. Although sharp input cost reductions could lead to healthy earnings growth, Asian Paints’ valuations are fair at 62.3 times FY24E and 54.5 times FY25E earnings per share.
We retain our 'Neutral' rating with a target price of Rs 3,120 (based on 50 times FY25E EPS).
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