Paints

Price hikes neutralised material price increase – Berger Paints

Update on the Indian Equity Market:

On Wednesday, Indian stocks recovered from sharp declines and closed the session almost unchanged. The Nifty50 ended marginally higher at 16,282 led by TATASTEEL (+4.0%), JSWSTEEL (+3.5%), and IOC (+2.5%). SHREECEM (-2.1%), KOTAKBANK (-1.9%), and SUNPHARMA (-1.8%) led the laggards. Among the sectoral indices, METAL (+3.1%), OIL & GAS (+1.2%), and PSU BANK (+0.5%) led the gainers. PHARMA (-1.5%), PRIVATE BANK (-0.7%), and BANK (-0.6%) led the laggards.

Excerpts of an interview with Mr. Abhijit Roy, MD & CEO, Berger Paints (BERGEPAINT) with Economic Times on 10th August 2021:

  • April and May months were impacted due to the lockdown restrictions. In June and July, demand bounced back to normal. Demand is likely to remain strong in the subsequent months.
  • The Company has taken price hikes in the water-based paints which contribute to a bulk of their sales. This hike neutralised the entire raw material price increase. In solvent-based enamel paints, they are yet to pass on the entire price increase. In industrial paints, negotiations are ongoing and expected to be finalised soon.
  • Some erosion in terms of gross margin is expected to be made up by cost savings and BERGEPAINT expects to retain the current level of margins.
  • The price increase is about 5-6%, taken in stages. Despite the discretionary nature of their products, demand hasn’t really been affected.
  • The revenue from new construction projects declined in FY21. With the easing of restrictions, there has been a surge in new construction projects. New construction projects and repainting are contributing to overall growth in the business.
  • The inventory levels are low at the company level. With every price increase, there was an increase in dealer-level inventory.
  • BERGEPAINT has always welcomed competition. The company has its own strengths and built its own network over time. Brand building takes a long time in the paints category, and BERGEPAINT continues to maintain its market share.

Asset Multiplier Comments

  • BERGEPAINT 1QFY22 results beat street estimates as the impact of lockdowns was not as severe as anticipated. Most companies have been bearing the brunt of higher crude oil prices. BERGEPAINT was no exception and reported margins were lower sequentially.
  • Though near-term headwinds remain due to higher raw material prices, we believe BERGEPAINT to benefit from rising distribution reach, a strong presence in urban markets, and calibrated pricing.

Consensus Estimate: (Source: market screener website)

  • The closing price of BERGEPAINT was ₹ 820/- as on 11-August-2021. It traded at 88x/ 71x/ 59x the consensus earnings estimate of ₹ 9.3/11.5/13.8 for FY22E/ 23E/ 24E.
  • The consensus target price of ₹ 696/- implies a PE multiple of 50x on FY24E EPS of ₹ 13.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

More price hikes will be required to mitigate input cost pressures- KANSAINER

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed 0.6% lower at 14,851. Within NIFTY50, COALINDIA (+5.9%), NTPC (+4.9%), and IOC (+4.4%) were top gainers, while JSWSTEEL (-3.4%), HINDALCO (-3.0%), and KOTAKBANK (-3.0%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.1%), MEDIA (+0.8%), and REALTY (+0.3%) were the highest gainers, while FINANCIAL SERVICES (-1.3%), METAL (-0.9%), and PRIVATE BANK (-0.9%) were the top losers.

 

More price hikes will be required to mitigate input cost pressures- KANSAINER

 

Excerpts of an interview with Mr. Anuj Jain, ED, Kansai Nerolac Paints (KANSAINER), aired on CNBC-TV18 on 10th May 2021:

  • 4QFY21 was good for KANSAINER on a YoY basis because of low base of last year.
  • KANSAINER saw sales growth of 34.7% YoY in 4QFY21. For full year FY21, decorative paints segment saw a positive volume growth but a decline on the revenue/value basis.
  • In FY21, KANSAINER gained market share in the industrial paints segment, while growth in the decorative paints was at par with market growth.
  • April 2021started on a good sales momentum but the momentum dropped later due to rising Covid-19 cases in India.
  • KANSAINER’s 80-90% sales offices are closed in May. Factories are running as they fall under continuous process units but demand has taken a hit.
  • KANSAINER took a price hike for the decorative paints segment in March 2021.
  • In the Industrial segment, the company has started talks with its clients for price increases and started implementing price hikes in some places as well. But these price hikes are not enough as the raw material inflation is still raging. Mr. Jain thinks that more price hikes will be required to mitigate the input cost pressure.
  • KANSAINER’s Auto OEM clients are also facing significant pricing pressures. But it is inevitable for KANSAINER to pass on at least some, if not all, component of the input cost pressure.
  • Most Auto OEMs have declared shutdowns, so demand for KANSAINER’s products to the auto space is also expected to be very low till the situation improves.
  • FY22E revenues are difficult to predict at this point as paint industry is closely linked to the GDP growth and dependant on how the current situation evolves.

Asset Multiplier Comments

  • Companies across industries have been talking about significant input cost pressures. This comes at a time when demand is also impacted due to partial lockdowns imposed in several states in India. This is a double whammy situation for companies. On the one hand they are not able to pass on the entire rise in cost in a fragile demand scenario. At the same time, lower sales means that companies face negative operating leverage- contributing to further pressure on the margins.
  • How companies navigate this tough situation remains to be seen and will only get reflected in the 1QFY22E results.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of KANSAINER was ₹ 554 as of 11-May-2021. It traded at 50x/ 39x the consensus EPS estimate of ₹ 11.2/14.3 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 612/- implies a PE multiple of 43x on FY23E EPS of ₹14.3/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Demand remains strong, expect 4QFY21 to be better than 3QFY21 – Berger Paints

Update on the Indian Equity Market:

On Wednesday, Nifty50 ended in the green at 15,246 (+2.2%), lifted by heavyweight Reliance Industries which gained after winning INR 571 bn worth of airwaves in the recently concluded spectrum auction.  The stock gainers in Nifty50 were TATASTEEL (+5.3%), BAJAJFINSV (+5.0%), and RELIANCE (+4.8%) while the auto companies HEROMOTOCO (-1.5%), MARUTI (-1.2%), and BAJAJ-AUTO (-1.2%) topped the losers. Among the sectoral indices, METAL (+3.3%), PSU BANK (+3.2%), and FINANCIAL SERVICES 25/50 (+2.9%) led the gainers. AUTO (-0.7%) was the only index to close in the red.

Excerpts of an interview with Mr. Abhijit Roy, MD &CEO, Berger Paints (BERGEPAINT) with CNBC TV18 on 2nd March 2021:

  • In 3QFY21, BERGEPAINT reported a 32% rise in volumes. The demand scenario is quite similar to 3QFY21 and with a low base of 4QFY20, the company expects to report strong growth in 4QFY21.
  • The management expects good growth from the waterproofing business and construction chemicals.
  • A part of the volume growth was partly on account of pent-up demand.
  • There is a shift towards premium and luxury categories which were suffering in the initial Covid-19 days. Overall, the demand scenario is strong, though 30%+ growth may not be sustainable.
  • There has been an increase in input costs, especially for solvent-based products and the industrial segment is affected. To compensate for the higher input costs, they have received price hikes from some customers. Discussions with some clients regarding price hikes is still pending.
  • The impact of cost hikes has been lesser on the decorative paints. The management expects an impact on gross margins but EBITDA margins are expected to be retained on account of cost-saving measures undertaken. The management believes a price hike may have to be taken for decorative paints as well if the material cost uptrend continues.
  • The company is currently operating at ~95% of its capacity due to the uptick in volumes. Hence, they are undertaking both brownfield and greenfield expansion projects. A new plant at Lucknow is being commissioned for ~Rs 7,000 mn. The new plant is expected to be operational by Jan 22.
  • The decorative paints segment is growing at a faster rate compared to Automobiles. The Auto segment is a mixed bag, with Commercial vehicles, and Tractors doing well and passenger vehicles and 2-wheeler lacking compared to expectations.
  • The protective coatings category is growing in double digits, albeit at a slower pace compared to decorative and automotive.
  • The premium category has picked up significantly after Oct-20.

Asset Multiplier Comments

  • The paint companies reported strong growth in the decorative paints segment due to pent-up demand, delayed festive season, strong momentum in tier 3-4 markets, and share gains from small, unorganized players.
  • The weak macro environment impacted the industrial coatings while auto coatings did well. The auto coatings recovery was in line with the recovery in the Passenger and Commercial vehicles.
  • We believe as the metros and cities return to normalcy, the premiumisation trend will be stronger.

Consensus Estimate: (Source: market screener website)

  • The closing price of BERGEPAINT was ₹ 729/- as of 03-March-2021. It traded at 101x/ 77x/ 65x the consensus earnings estimate of ₹ 7.2/ 9.5 /11.3 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 620 implies a PE multiple of 55x on FY23E EPS of ₹ 11.3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Double-digit growth to continue in 4QFY21 – Asian Paints

Update on Indian Equity Market:

Markets started the fresh week on a selling spree as Nifty closed the day 133 points lower at 14,239. Within the index, the gainers were led by GRASIM (5.9%), UPL (4.0%) and CIPLA (3.8%) while RELIANCE (-5.9%), INDUSINDBK (-5.5%) and HCLTECH (-3.8%) led the losing pack. Within the sectoral indices, PHARMA (1.7%), METAL (0.2%) and BANK (0.1%) were the only gainers while IT (-1.8%), AUTO (-0.8%) and REALTY (-0.8%) were the highest losers.

Excerpts of an interview with Mr Amit Syngle, MD & CEO- Asian Paints (ASIANPAINT) with CNBC TV18 dated 22nd January 2021:

  • 3QFY21 has been phenomenal as the company witnessed a YoY growth of more than 30%. The growth was achieved on the back of the Indian decorative segment which grew 32% YoY in volume terms and 26% in terms of value. 
  • All three months during 3QFY21 reported double-digit YoY volume growth. October grew fastest in terms of volumes. The company gained market share in the organized as well as the unorganized market. Metros, Tier-I and Tier-II contributed to a sizable chunk of growth.
  • He said that industrial and international segments picked up strongly from 2QFY21. The growth was seen across verticals.
  • The consumer sentiment continued to improve. The company expects to continue double-digit YoY volume growth in 4QFY21.
  • The industry is witnessing some pent demand which is difficult to quantify. The construction and real estate sector is also picking up which will add to the growth during the quarter.
  • He said that 4QFY21 may see an impact in terms of raw material inflation. The company is still expected to maintain the current level of margins in the quarter.

Consensus Estimate: (Source: market screener website)
• The closing price of ASIANPAINT was ₹ 2,521/- as of 25-January-2021. It traded at 80x/ 65x/ 56x the consensus earnings estimate of ₹ 31.5/ 38.7/ 45.3 for FY21E/FY22E/23E respectively.
• The Consensus price target of ASIANPAINT  was ₹ 2,525/- as of 25th January 2021 which is 56x of FY23E EPS estimate of ₹45.3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expecting double-digit growth YoY in 3QFY21 – Berger Paints

Update on Indian equity market:
Markets started the week on a higher note as Nifty closed the day 44 points higher at 13,571. Within the index, ONGC (5.9%), LT (4.3%), and CIPLA (4.1%) led the index higher while EICHERMOT (-2.5%), HEROMOTOCO (-2.2%), and M&M (-2.0%) were the highest losers. Nine out of 11 sectoral indices were in the green with MEDIA (2.0%), PSU BANK (1.8%), and METAL (1.4%) leading the pack while AUTO (-1.0%) and REALTY (-0.9%) were the only losers.
Excerpts of an interview with Mr. Abhijeet Roy, Chief Operating Officer, Berger Paints (Berger) published on CNBC-TV18 dated 11th December 2020:
The demand scenario in the month of October and November was robust. The company is witnessing a similar trend in December. He expects the volumes to report double-digit YoY growth in 3QFY21E.
Demand from the auto segment surged ahead of the festive season. The demand has softened in the month of December.
The decorative segment has seen robust demand right from 2QFY21 and continues to do well in the month of December.
To meet the ever-increasing demand for its products, the company is putting up a new plant at Lucknow. The initial plan was to have Rs 2,600-2,700 mn of investment in capacity expansion. The same has been ramped up to beyond Rs 4,500mn looking at the demand scenario.
He said that the costs are going up for some raw materials, specifically for monomers. The margins are expected to be under pressure in 4QFY21E.
He said that the company reported the fastest growth in the industry and as a result, gained market share. With the ever-increasing demand scenario, he is confident of continuing the momentum.
Consensus Estimate: (Source: market screener website)
The closing price of Berger was ₹ 681/- as of 14-Dec-2020. It traded at 102x/ 75x/ 63x the consensus EPS estimate of ₹ 6.7/ 9.1/ 10.8 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 551/- implies a P/E multiple of 51x on FY23E EPS of ₹ 10.8.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Company growing better than the industry average – Berger Paints

Update on the Indian Equity Market:
On Monday Nifty closed 1.6% higher at 12,461. Among the sectoral indices, Bank (+2.7%), Pvt Bank (+3.3%), and Fin services (+1.9%) closed higher. Media (-0.01%) closed lower. Cipla (-2.9%), Adani ports (-1.1%), and Maruti (-0.6%), closed on a negative note. Divis labs (+5.4%), Bharti Airtel (+5.1%), and IndusInd Bank (+4.9%) were among the top gainers.

Excerpts from an interview of Mr. Abhijit Roy MD & CEO, Berger paints with CNBC-TV18 dated 6th November 2020:

● The months of August and September saw a good pickup in demand.

● On volume growth, Mr. Roy said there was a 17% growth in the decorative business and overall all volume growth was around 16%.

● Speaking about growth sustainability, he said October was better and November 20 to date is good. On the back of this, the company expects 3QFY21 to be better than 2QFY21.

● In Q2FY21, the performance of Berger was better than the industry.

● On the Expense front, he said there are savings in fixed expenses and some of these expenses like traveling and rent will be lower than normal in the near term. There is also some amount of savings on the raw material front.

● On the demand trend, he said most of the demand is coming from Tier 2, 3, and 4 towns. The demand is also picking up in urban centers.

● On products, he said earlier the lower and economic products were seeing a higher demand but since October month there is a revival in premium and luxury category as well.

● The company plans to expand its capacity. The current capacity utilization was around 93%.

● The new plant is expected to be operational by December 21.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Berger Paints was ₹ 650 as of 09-November-2020. It traded at 104x/ 74x/ 62x the consensus Earnings per share estimate of ₹ 6.27/8.78/10.5 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Berger Paints is ₹ 489/- which implies a PE multiple of 47x on FY23E EPS of ₹10.5/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Demand strong ahead of festive and wedding season – Asian Paints

Update on the Indian Equity Market:
On Tuesday, Nifty ended 1.2% higher at 11,813 led by the financial & metal stocks. The top gainers for Nifty 50 were ICICI Bank (+6.7%), Hindalco (+5.1%) and SBI (+4.3%) while the losing stocks for the day UPL (-6.6%), NTPC (-3.8%) and Reliance (-1.3%). Top gaining sectors were Bank (+3.2%), Financial Services (+3.1%) and Pvt Bank (+3.1%) while the losing sectors for the day were Realty (-2.3%), and Media (-0.3%).

Edited excerpts of an interview with Mr Amit Syngle, MD & CEO, Asian Paints; dated 02nd November 2020 from CNBCTV18:

Demand has been buoyant in the festive season, according to Mr Syngle. He further added that staying at home has made people desire home improvement.

The Company is seeing a very strong growth trend because of the festivals coming in with the wedding season which is also around. So both these factors are giving very strong flavour to the market and that is the trend they are seeing in October as well.

Mr Syngle said that demand in tier-II, III and IV cities has been exceptional. The luxury segment in rural areas was picking up too.

The company sees demand from metros close to about 85% of the pre-COVID levels. For Tier-III and tier-IV, it sees a strong jump in terms of demand even better than pre-COVID times.

Mr Syngle added that the home décor business was growing much faster on a low base.

According to him, Asian Paints is not about just owning the walls, but space between the walls. The Company sees that trend coming in strongly and he sees a definite pick up in September in terms of people embellishing their homes not only with respect to walls but even with respect to the other areas which fill up space in the home.
Asian Paints is open to acquisitions that will bring in synergistic benefits.

Talking about the quarterly result he said, 3Q margins may be better than 2Q on stable inputs. The Company has lately witnessed input costs moving up due to demand.

Consensus Estimate: (Source: market screener website)

The closing price of Asian Paints Ltd was ₹ 2,158/- as of 03-November-2020. It traded at 74x/ 52x/51x the consensus book value estimate of ₹ 29.2/36.4/42.4 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 2,086/- implies a PE multiple of 49x on FY23E EPS of ₹ 42.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect double digit growth over the next 5 years – Kansai Nerolac

Update on the Indian Equity Market:
On Friday, NIFTY was down 194pts (-1.7%) at 11,334. Among the sectoral indices, METAL (-3.0%), PSUBANK (-2.7%), and REALTY(-2.3%) were the top losers and there were no gainers. Among the stocks, MARUTI (+1.8%) was the only gainer. TATASTEEL (-3.9%), AXISBANK(-3.8%), and ADANIPORTS (-3.6%) were the top losers.

Edited excerpts of an interview with Mr. HM Bharuka, Vice Chairman and Managing Director of Kansai Nerolac with ETNOW dated 3rd September 2020:

• His comments on completing 100 years: Feels proud to complete 100 years, there are few companies in India who have thrived and survived 100 years. Surviving through various crises in the past 100 years and going through Covid indicates the strength of the company.
• His views on the next 3-5 years and visibility for the business: Paint industry since 1991 is having double-digit growth. He thinks the penetration level is still low, per capita income is rising, and expects double-digit growth for the next 20-25 years. Looking at various parameters like consumer, demography, infrastructure, auto industry gives confidence that these sectors will grow from hereon and sees good prospects for the paint industry for the next 20-25 years.
• When asked about his views on auto sales numbers picking up in the month of Aug-20 he commented that it is slowly picking up, because of the pandemic and financial crisis, the auto industry was facing problems. But every 3-5 years, the auto industry does see a dip and then recovers back. It was about to recover but due to the pandemic it got postponed and now we can see month on month improvement, but he thinks still there is a long way to go. Commercial vehicles are still in problem and for 2 wheelers, some companies have done well and the others have not. Overall, he thinks it will take time for the auto industry to recover but positive signs are beginning to show up. In fact, he thinks pandemic would accelerate if we are able to sort out financial issues, because of the social distancing norm and people avoiding public transport, everyone would now like to own their own private vehicle. India should focus on the auto industry as it an important core industry and can become an export hub for auto and auto components and is optimistic about the auto sector.
• When asked about the demand scenario and whether he sees continuing volume growth for the rest of the year he stated that despite there being problems like non-availability of painters and people fearing to interact with each other still, Nerolac saw growth from May-20 onwards, which is a positive sign. Posting double-digit growth in 1FY21 indicates the strong nature of the paint industry and is confident about the architecture industry and is also positive on auto, infrastructure, and white goods segment.
• When asked about the possibility of market share shifting from urban to rural areas, he informed that the penetration level of this industry is low in rural areas, so in any case, Nerolac is supposed to do better in rural areas as compared to the urban market. Due to this pandemic, the rural economy is doing well and expects rural demand to continue to grow faster than urban going forward. He is counting more on the rural market to do well for double-digit growth for the company.
• When asked whether Indian companies are complete “aatmanirbhar”, he said that India has only one manufacturer of TiO2, an important raw material for paints, and that too is government-controlled. More than 2/3rd of India’s TiO2 consumption is currently being imported. He believes there is a big opportunity to make TiO2, Monomers, and other pigments used for specialty paints in India.
• His comments on strategy for the next 5 years: This is the industry is a defensive and growing industry which is reflected in PE multiple ranging from 40-60x. For the next 5 years, Nerolac expects to continue to grow in double digits if growth continues there are few players as entry barriers are high and hence expect margins to expand. Of course, global consolidation will take place, but despite that, all major players are in India and it is expected that current players will expand its topline and bottom line. He expects 12% compounded growth for the company and stock return to be higher than 12%. He sees a golden period for investors and shareholders. Commenting on dividend payout, he said that this industry has positive cash flow, and when there are no other investment opportunities there is no point keeping the cash as ROCE goes down. So, certainly, cash should be given back if no other investment opportunities are found.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Kansai Nerolac was ₹ 486/- as of 04-Sep-2020. It traded at 59x/43x/36x the consensus EPS estimate of ₹ 8.27/11.5/13.7 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 426/- implies a PE multiple of 31x on FY23E EPS of ₹ 13.7/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Confident of future as a lot of new demand has come in June – Asian Paints

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 169 pts (+1.5%) at 11,300.
Among the sectoral indices, AUTO (+3.2%), METAL (+2.2%) and IT (+2.4%) were top gainers while MEDIA (-0.2%) was the only loser.
Among the stocks, ULTRACEMCO (+7.0%), KOTAKBANK (+4.7%) and TCS (+4.7%) were the top gainers. ICICIBANK (-1.8%), INFRATEL (-1.6%) and NESTLEIND (-1.4%) were the top losers.

Confident of future as a lot of new demand has come in June – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director & Chief Executive Officer, Asian Paints with Economic Times dated 27th July, 2020:

We saw a lot of secondary demand come up across the cities and that has boosted our confidence that a lot of new demand has come in areas of painting, waterproofing and so on, says Amit Syngle, MD & CEO.

• His comments on 1QFY21 result: There was no business activity from 20th March to end of April due to the lockdown. The entire month of April was an absolute washout. A lot of pent up demand was seen in May and people had to look at some of those real pent up maintenance issues. Therefore, in May, there was very satisfying pent up demand across the country. However, a good part of it was seen in June, triggered by Asian Paint’s safe painting campaign which gave people confidence that it was safe to get a set of painters to get your house painted. A lot of secondary demand came up across the cities and that has boosted the company’s confidence that it was not only the pent up demand which we saw in May but a lot of new demand which came in both in the area of painting, waterproofing and so on. This was also led by another campaign which Asian Paints did with terrace waterproofing. A lot of demand which has come in the June is new paint demand and that has boosted confidence in the market.
• When asked about how confident he is of this new paint demand trend continuing he replied that the month of July has been more challenging in terms of the sporadic lockdown across various states. But till now, the indications have been good in terms of looking at how the paint demand is coming and he feels that today the trend is changing. Some of the tier one-tier two cities which were slow to kind of recover are recovering at a higher rate the surge was possibly shown at the smaller cities which were the tier three, tier four cities. He further added that there might be slowing down a little as Covid is spreading more into the hinterland but there is a balancing which is happening with respect to that and therefore the current indications are that volumes are still looking decent.
• When asked about the demand pattern of premium decoratives, he stated that some products are at the luxury and premium end and are also solutions based. If people are looking at that kind of an antibacterial protection for their homes, it is still value for money coming at the luxury end. But in general, there is a little bit of downtrading where people are coming down from the luxury end and looking at more premium products and upgrading far more strongly. A lot of discretionary spend is happening in terms of maintenance rather than absolutely décor. Therefore, he is of the view that a part of this painting has come in because people would like healthy and hygienic homes, fairly clean and beautiful homes
• His stated his views on pricing strategy: Overall, the company has been very cautious and is looking at ways and means in terms of better material costs, sourcing efficiencies and formulation efficiency. As of now, there is a little bit of neutrality coming because there is a rupee which has depreciated. Raw material prices are going up as demand comes back. Volatility will continue and he will be more focused in terms of internal efficiencies and going ahead, he doesn’t see any changes in terms of prices till the time there is a stability in terms of the environment we are in.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Asian Paints was ₹ 1,756/- as of 28-July-2020. It traded at 67x/ 51x/ 44x the consensus earnings estimate of ₹ 26.7/34.9/40.9 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 1,810/- implies a PE multiple of 44x on FY23E EPS of ₹ 40.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Update on the Indian Equity Market:

For the second consecutive day, the Nifty closed lower at 9,206 on Tuesday amid reports of stress among lenders when millions of borrowers are facing pandemic induced income loss. As a result, there were no sectoral gainers. PSU Bank (-3.3%), Realty (-2.9%), and Bank (-2.4%) were the top losing sectors. Among the stocks, the biggest gainers were Infratel (+3.6%), M&M (3.2%), and Powergrid (+2.9%). SBIN (-4.2%), Bajaj Finance (-3.8%), and Britannia (-3.6%) led the losers.

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Excerpts of an interview with Mr. Amit Syngle, MD & CEO, Asian Paints which aired on CNBC TV18 on 4th May 2020:

  • For the last 3-4 weeks, Asian Paints were under a complete lockdown. The lockdown 3.0 has offered some relaxation.
  • Some of the plants and warehouses have opened as shops for non-essential goods have been allowed to open. Most of their plants have opened but work at slightly reduced capacity.
  • Asian Paints has given buyers 45 days of credit and asked vendors for an extension as well. Talking about the liquidity position, he said stringent cost-cutting measures are being undertaken to preserve cash. There is comfortable liquidity going ahead and they do not foresee any problems in the coming period.
  • Asian Paints had announced their foray into the hand and surface sanitizer with the Viroprotek range of products. Talking about the development of this range, he said they have worked on the range in the last 10-15 days at the behest of the government and the Ministry of Health, and Ministry of Chemicals.
  • As a responsible and caring brand, they wanted to help the government and community and the shortage in the market was the motivation for entering this segment. They already have the Royal Health Shield, a range of antibacterial paint that ensures hygiene and bacteria control. So entry into the sanitizer range aligned with their objective.
  • They have been in the Health and Hygiene space for some time and have products in that range. In the near future, Viroprotek will be a part of the overall range.
  • To ensure reach to the right outlets and ensure adequate supply, their distribution segments will be activated.
  • Though initially entire production will be directed to the Government and NGO initiatives, sanitizers & surface cleaners will be part of Asian Paint’s portfolio in the future. They are looking to enter the service industry for sanitization in a very big way.
  • On the business plans going forward, he said they are watching and devising scenarios as to what will happen in these exceptional circumstances. There is no clarity in terms of how the situation envelops, and what is going to happen. Thus, depending on how the situation clears up and the market opens, plans will be made accordingly. It is difficult to give concrete plans as the entire environment is uncertain.
  • Talking about the top line, no action will be seen in 1QFY21. As per indications coming in, it will be a wipe off quarter. It is difficult to say how revenues will come in for the entire year.

Consensus Estimate: (Source: market screener website)

  • The closing price of Asian Paints Ltd was ₹ 1,618/- as of 05-May-2020.  It traded at 49.5x/ 41.6x the consensus EPS estimate of ₹ 32.7/ 38.9 for FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,822/- implies a PE multiple of 46.8x on FY22E EPS of ₹ 38.9/-

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