Asian Paints – Buy

Asian Paints is not just India’s largest company in home decor but also a significant player globally, ranking second in Asia and eighth among the world’s top paint manufacturers. The company provides a variety of products, including decorative and industrial paints, waterproofing solutions, adhesives, and items for home improvement like wall coverings, kitchen and bath products. Expanding its product range, Asian Paints has recently ventured into offering lighting, furnishings, and furniture under three new brands—Nilaya, Royale, and Ador—enhancing its home decor selection. Asian Paints operates internationally with 27 manufacturing facilities across the globe and serves customers in over 60 countries. It has a presence in 15 countries across regions such as Asia, the Middle East, the South Pacific, and Africa, with eight corporate brands including Asian Paints Berger and SCIB Paints among others.

Why should one invest in Asian Paints?

Double-digit volume growth expectations bode well for business performance

The company is working towards keeping its growth in sales volumes in the double digits. This growth is supported by its strategy to reach more customers in smaller cities combined with a steady demand for its products. Even though the company reduced its prices by 1.3% last quarter, it still managed to improve its profit margins because the costs of raw materials went down slightly by 0.2%. The management expects that the cost of raw materials will continue to decrease in the short term, which should be beneficial in the upcoming fiscal year. Additionally, the company has successfully completed upgrades at its Khandala and Kasna facilities. They are also planning to start selling white cement by December 2025 and expect to launch their VAM business a few months after that, which will help increase their sales volumes even more.

Capacity enhancements for the rapidly expanding industry to bear fruit in future

Asian Paints is well-prepared for the next few years to take advantage of the growing Indian paint market, which is expected to reach a size of Rs. 1,000 billion in five years. The company plans to invest in its facilities over the next 2-3 years to increase production and strengthen its lead in the market. These investments include enlarging its existing paint plants in Kasna, Khandala, Ankleshwar, and Mysuru, which will cost Rs. 3,400 crores and increase production capacity by 5.40 lakh kiloliters per year. Additionally, Asian Paints is expanding its Home Décor business, aiming to open more stores and grow this division to account for 8-10% of its total decorative sales. The company also anticipates that integrating more production processes will improve profit margins and boost revenue growth.

Valuation and Outlook

Asian Paints has evolved into a comprehensive home-improvement brand in India, not just offering paints but also waterproofing, decor, and more. The company’s sales are mainly from its Decorative business (84%), with smaller contributions from Home Décor (4%), Industrial coatings (3%), and international operations (9%). Asian Paints sells directly to dealers, cutting out distributors to improve dealer profits. It has successfully expanded its market share by focusing on both premium and economy paint products. Over the past three years, the company’s revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), and profit after tax (PAT) grew at annual rates of 26.0%, 13.5%, and 14.4%, respectively. Seeing significant opportunities in Home Décor, Asian Paints has ventured into lighting, doors, windows, fabric, and furniture. With factors like increasing demand, particularly from rural areas, decreasing raw material costs, and expansion plans, Asian Paints is expected to perform well against competitors in the long term. The company is recommended as a Buy with a target price of Rs. 3,300, offering a 16% potential upside.