Target: ₹3,150

CMP: ₹2,788.10

We cut our FY23/FY24/FY25 EPS by 6.3/9.1/8.5 per cent given flat volumes during Q3 of FY23, intend to maintain competitive pricing with GM band of 38-40 per cent & EBIDTA margin band of 17-20 per cent and lower other income due to ₹2,000 crore capex on greenfield paints unit.

Q3 saw a sharp 414bps QoQ ETBIDA margin recovery supported by 284 bps QoQ gross margin improvement despite mix deterioration and no further price hikes.

We believe Asian Paints might pass on benefits of lower RM costs to consumers to push volumes and improve market competitiveness.

Long term growth levers are intact led by market share gains in decorative paints; increased distribution (addition of 10k retail touch points in 9M23); innovations and focus on high growth waterproofing/wood finishes segment; scalability plans in home decor from 4 per cent to 10 per cent by FY26 (both organic and inorganic).

We believe Asian Paint’s plans of backward integration into VAE & VAM, white cement JV in the UAE and nanotech emulsion paints show larger plans of the company to grow in futuristic coating segments. The benefits of ₹875 crore capex will start getting reflected from FY26 only. We see little scope of further re-rating given likely aggression from Grasim & JSW in Paints and impending capex plans.