Asian Paints share price up 3% on Q4 show; CLSA, Credit Suisse remain positive

Asian Paints share price was up over 3 percent in morning trade after the company declared its March quarter results on June 23.

The company reported a 2.1 percent year-on-year decline in consolidated profit at Rs 462 crore for Q4FY20. Revenue during the quarter also declined 7.1 percent to Rs 4,635.6 crore compared to corresponding period last fiscal.

The stock price has seen a steady rise in last 7 days.

At 9:24 am, it was trading at Rs 1,721.80, up Rs 38.15, or 2.27 percent. It touched an intraday high of Rs 1,723.80 and an intraday low of Rs 1,686.20. It was also one of the most active stocks on NSE in terms of value with 13,30,979 shares being traded.

On the operating front, earnings before interest, tax, depreciation and amortisation (EBITDA) of Asian Paints dropped 3 percent year-on-year to RS 859.62 crore in the quarter ended March 2020, but margin increased 80 bps to 18.6 percent YoY in Q4 which was ahead of a CNBC-TV18 poll estimates of 18.3 percent.

"Loss of sales due to the lockdown in March 2020 impacted the decorative business segment in an otherwise strong quarter with double digit volume growth in the first two months of the quarter," Amit Syngle, Managing Director & CEO said.

For Q4 FY2020, Asian Paints topline de-grew by 7 percent to Rs 4,636 crore. Top-line was negatively impacted mainly due COVID-19 lockdown. On the operating front, the company reported margin improvement (up by 79bp YoY to 18.5 percent), primarily on account of lower raw material costs by 414bp YoY as a percentage of sales as prices of its key raw materials (due to lower crude prices during the quarter). The reported net profit de-grew by 1 percent YoY to Rs 480 crore due to lower sales and higher depreciation cost, said Amarjeet Maurya, AVP - Mid Caps, Angel Broking.

Global research firm CLSA has maintained an outperform call on the stock with target at Rs 1,710 per share. It is of the view that restoring consumer confidence remains a priority with the company expecting demand to be restored in H2, according to a report by CNBC-TV18.

CLSA feels that diversified portfolio and strong brands will help gain market share for Asian Paints while valuation leaves little room for further upside.

Credit Suisse has also maintained an outperform call on the stock with target at Rs 1,850 per share. The firm is of the veiw that Asian Paints is seeing steady recovery in May and June adding that strong gross margin tailwinds is due to fall in crude prices.

Within consumer discretionary, Asian Paints has the highest visibility of FY22 earnings, Credit Suisse said. The firm has however cut FY21 earnings by 4 percent.

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