Buy these large-cap paint stocks for upside potential, Rs 3,689 price target: Sharekhan

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Q4FY22 Results

The brokerage in its recent report on Asian Paints stated: “In the fourth quarter of FY2022, Asian Paints Ltd (APL) consolidated revenue grew by 19% to Rs. 7,892.7 crore driven by an increase of 8% in volumes (two-year CAGR of 26%) in the domestic decorative paints business, while realization growth was 12% during the quarter. Commodity inflation on a year-over-year basis was 26%, reducing gross margins by 448 bps YoY to 38.7% (as well as improving by 195 bps QoQ as inflation remained flat) and OPM decreased 153 bps YoY to 18.3% (remaining flat in compared to 18.1% in Q3) PAT grew by 10.3% YoY to Rs 959.7 crore The third wave of COVID-19 led to a brief hiatus in January sales while which in February, March and April saw strong volume growth In FY2022, consolidated revenue grew 34% yoy (with decorative volume growth 31%), while adjusted PAT grew 11% (led by a 586 bps drop in OPM ). “

positive and negative keys

positive and negative keys

Commenting on the positives for the stock, the brokerage said: “February-March 2022 saw strong double-digit volume growth, resulting in 8% volume growth in Q4 2022 (over a high base volume growth of 48%).The kitchen business saw a third consecutive quarter revenue growth of over Rs 100 crore, while the bathroom business generated revenue of over Rs 100 crore for the second consecutive quarter , kitchen business losses were significantly reduced on a year-over-year basis % and 28% respectively thanks to the good recovery in the automotive sector and the industrial coatings segment.”

Whereas, commenting on the negatives, the brokerage said: “International business operating margins were significantly affected by strong material inflation and currency devaluations in Sri Lanka, Ethiopia and Egypt, resulting in a 56% decline in IB PBT.”

Buy for a target price of Rs 3689 per share

Buy for a target price of Rs 3689 per share

The brokerage said in the report: “Asian Paints’ dominant positioning in the home decorative paint business and focus on becoming a complete home décor game over the long term gives us better visibility of earnings growth in medium term Market share gains, distribution expansion and sustained new product additions will help the company achieve better volume growth than its peers in the medium term With the company focusing on becoming a full-service home decor (contributing 10% of revenue for FY2026), its valuation will remain premium in the consumer space Shares trade at 71.8x and 54.9x its FY2023E and FY2024E EPS We maintain our rating buy on the stock with an unchanged target price of Rs 3,689 Key risks Sustained high inflationary pressure putting pressure on sales volume Tier2/4 Income Market and volatile input prices would act as a key risk to our earnings estimates.”

The brokerage further stated and said of the key risks: “Sustained high inflationary pressure putting pressure on sales volume in the Tier2/4 market and volatile input prices would act as a key risk to our earnings estimates.”

Disclaimer

Disclaimer

The stock has been selected from the Sharekhan brokerage report. Greynium Information Technologies, the author and the brokerage house are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult certified experts before making any investment decisions.



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