Q3FY23 Review: Asian Paints: A weak quarter

20 Jan 2023 , 11:35 AM

Asian Paints reported weak performance in Q3FY23, with sales growing only by 1% YoY and 3-year CAGR slowing to 17% from 19% in Q2. Decorative volume growth was flat driven by demand headwinds in October, due to late monsoon withdrawal and high base of November. However, EBITDA margin of 18.7% was above the estimates of IIFL Capital Services, driven by softening of inflation aiding gross margins.

Analysts at IIFL Capital Services expect volume growth in FY24 to moderate to high-single to low-double digit and have cut their FY23/24/25 EPS by 3%/6%/7%. These EPS cuts come mostly on the back of revenue growth moderation; however, on margins analysts at IIFL Capital Services are more comfortable and expect FY24/25 margins to be at 19.6%/20.2%. Moreover, with Grasim expected to enter Paints market analysts at IIFL Capital Services see further risks to topline and margins in the medium term.

The company increased its capex plans by Rs20 billion to Rs87.5 billion over the next three years. 

Analysts at IIFL Capital Services have maintained their Reduce recommendation on the stock with a target price of Rs2,700.