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Asian Paints Ltd>
  • CMP : 3,270.0 Chg : 43.75 (1.36%)
  • Target : 3,425.0 (9.08%)
  • Target Period : 12-18 Month

12 May 2023

Upbeat operating performance…

About The Stock

Asian Paints (APL) is India’s largest decorative paint company. The company derives ~98% revenue from the paints business while 2% business comes from the home improvement business (kitchen and bathroom fittings).

  • Caters to ~1.5 lakh retail touchpoints across India
  • Despite being in a capital intensive business, the company has maintained a strong balance sheet with RoCE, RoE of ~31%, 27%, respectively
Q4FY23 Results

Strong performance on all fronts.

  • APL reported healthy revenue growth of ~11% YoY to ~₹ 8787 crore led by strong volume offtake. Decorative volume growth came in at 16% YoY led by robust demand and expansion of distribution networks. The company has not taken any price hike during Q4FY23
  • Easing raw material prices helped drive gross margin up 379 bps YoY. As a result, EBITDA margin expanded 293 bps YoY to 21.2%
  • PAT grew 44% YoY to ₹ 1258.4 crore tracking EBITDA margin expansion
What should Investors do?

APL’s share price has grown by ~2.4x over the last five years from ₹ 1286 in May 2018 to ₹ 3140 in May 2023

Target Price and Valuation

While we maintain our positive stance on Asian Paints, we believe the upside on the stock is capped at current valuation given the limited expansion in EBITDA margin due to increasing competition. We value the stock at 60x P/E FY25E EPS and revise our target price to ₹ 3425.

Key Triggers for future price performance
  • Repainting represents ~80% of total decorative paint demand. A gradual reduction in the repainting cycle would drive future paint demand. In addition to this, increased government capex on infra & rural housing will help drive overall paint demand
  • Increased focus on launching of new products, strengthening of backward integration is likely to drive EBITDA margin, going forward
  • Model revenue, earnings CAGR of ~14% each in FY23-25E
Alternate Stock Idea

We like Supreme Industries in our coverage.

  • Supreme is market leader in the plastic piping segment with ~15% market share. Robust b/s with average RoE, RoCE of 23%, 26%, respectively
  • BUY with a target price of ₹ 3200

Key Financial Summary

(| Crore) FY20 FY21 FY22 FY23 5 Year CAGR (18-23) FY24E FY25E 2 Year CAGR (23-25E)
Net Sales 20,211.3 21,712.8 29,101.3 34,488.6 15.4 39,344.1 44,500.7 13.6
EBITDA 4,161.8 4,855.6 4,803.6 6,259.8 14.4 7,593.4 8,610.9 17.3
EBITDA Margin (%) 20.6 22.4 16.5 18.2 - 19.3 19.4 -
Net Profit 2,779.1 3,206.8 3,084.8 4,195.3 14.9 4,975.2 5,430.5 13.8
EPS (|) 29.0 33.4 32.2 43.7 - 51.9 56.6 -
P/E (x) 108.4 93.9 97.6 71.8 - 60.5 55.5 -
Price/Book (x) 29.7 23.5 21.8 18.8 - 16.5 13.7 -
Mcap/Sales (x) 14.9 13.9 10.3 8.7 - 7.7 6.8 -
RoE (%) 27.4 25.0 23.0 26.5 - 27.3 24.8 -
RoCE (%) 30.5 29.6 27.1 30.8 - 32.7 30.8 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY23 Results: Robust volume growth, margins witness faster recovery

  • Asian Paints witnessed strong volume growth of 16% YoY in Q4FY23 on the back of a pick-up in demand in urban markets, expansion of distribution network and new product launches. On the industrial segment front, improved realisations helped drive segment revenue growth. The home décor business was impacted by subdued retail demand. Overall, the company reported ~11% YoY growth in revenue to | 8787 crore. APL has not taken any price hike in Q4FY23, considering easing raw material prices
  • The gross margin improved 379 bps YoY supported by a decline in raw material prices and better product mix. EBITDA margin increased 293 bps YoY to 21.2%, which is the highest reported margin in the last eight quarters. EBITDA margin expansion was mainly led by improvement in gross margin and better operating leverage
  • PAT increased ~44% YoY to | 1258.4 crore, tracking improvement in EBITDA margin. Base period included exceptional loss of ~| 116 crore

Q4FY23 Earnings Conference Call highlights

Demand Outlook

  • The company has guided for double digit volume growth in FY24. According to the management, the demand scenario is stable and the company will be aggressively pursuing growth through efforts on all fronts
  • Rural demand recovery is dependent on monsoon conditions. The company will be monitoring how the weather conditions evolve
  • APL is focused on scaling up its industrial business and further building on its home décor categories. The company is committed to achieving ~8-10% revenue contribution from the home décor business by FY26
  • The company has opened 50 Beautiful Home stores as of April 2023 and aims to further grow the number


  • APL has not taken any price increase in Q4FY23. There was a raw material deflation of ~4% resulting in an improved gross margin during the quarter
  • The management guided for EBITDA margin in the range of 18-20%, going forward
  • The margin in the lighting business is in the range of ~18-20%, furnishing business margin is at ~14% and the blended home décor margin is in the range of ~10-14%
  • Advertisement & promotional expenses was ~3.5% of sales in FY23

Network Expansion

  • Asian Paints added 15000-20000 dealer points in FY23 and is catering to ~1.5 lakh retail touchpoints. It aims to add 10000-15000 retail touch points in FY24

Capex & expansion plans

  • The planned capex of | 8750 crore is for brownfield and greenfield expansions for capacity enhancement, backward integration and acquisitions. The company has planned a capex of ~| 2500 crore in FY24
  • The company will be adding additional capacity of ~2.5 lakh KLs in FY24



ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%



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