Top brokerage picks: Asian paints & Mindtree
Posted by : Avneet Dhamija | Tue Jun 28 2022
Asian Paints Ltd.
Asian Paints Limited was founded on February 1st, 1942, and is currently the largest paint firm in Asia and India. Asian Paints has 25 paint manufacturing plants worldwide and operates in 17 of them, serving customers in over 65 nations. The business produces paints for the Decorative, Automotive, and Industrial markets. In addition to this, the company also produces a range of accessories, including wall primer, wood primer, putty, and stainers. It is the leading paint company in India with the highest market share.
Broker’s Call
Broker House | ICICI Direct | Prabhudas Lilladhar | Geojit Paribas |
BUY (INR) | 3035 | 3086 | 2668 |
Target (INR) | 3400 | 3511 | 3025 |
Upside | +10% | +13% | 13% |
Time Period | 12 Months | 12 Months | 12 Months |
ICICI Direct’s Views
Key Trigger for future Performance-
● Approximately 80% of the entire demand for decorative paint is for repainting. Future demand
for paint would be driven by a gradual reduction in repainting cycles.
● Asian Paints’ revenue growth will be fueled by a greater emphasis on the “water proofing &
building chemical” area.
ConCall highlights-
● In FY22, the firm introduced a number of new products in the home decor and water proofing
markets, including SmartCare HydroLOC, anti-crack durable coatings, and fire retardant paint.
● Plans to grow the number of its Beautiful Home stores, which sell kitchen, bath, and
sanitaryware products as well as lighting, tiles, flooring, furniture, doors, and windows, from 29
in FY22 to 70 by the end of FY23.
● By FY26, it is anticipated that the revenue contribution from home decor will rise from its current
4 percent to between 8 and 10 percent.
● In order to grow its home décor industry, the corporation purchased two firms in April 2022:
White Teak (in lighting) and Weatherseal (in doors and windows).
Prabhudas Lilladhar’s Views-
● Gains in market share for decorative paints in a sector seeing double-digit growth.
● Distribution expanded with the inclusion of 15,000+ retail touch points. Innovations and an
emphasis on the rapidly expanding waterproofing and wood finish market.
● Plans include for scalability in home décor from 4% to 10% by FY26 using both organic and
inorganic methods. Given its robust growth prospects, they anticipate Asian Paints to maintain
its premium valuations.
● The management is still concentrating on achieving double-digit volume growth with gross
margin and EBITDA margins of 40–42% and 18–20%, respectively, for FY23. Given the lack of
new COVID waves and the unpredictability in crude oil prices, management is nevertheless
cautiously optimistic about demand.
Geojit Paribas’ Views
● EBITDA margins were 18.3%, however the decline (153 bps YoY) was reduced by aggressive
price increases made in Q3FY22. Margins increased by 20bps YoY on a sequential basis. The short-term difficulties continue as a result of shifting macroeconomic circumstances.
● Top-line growth of 19% YoY in Q4FY22 was recorded by APNT, while volume trend held steady
at 8% despite sluggish activity in January owing to Omicron.
Mindtree Ltd.
Mindtree Limited is anInternational IT consulting and implementation firm which provides business
solutions through cross-border software development. The business is divided into the following four
industrial verticals: retail, consumer packaged goods and manufacturing (RCM), banking, financial
services, and insurance (BFSI), technology, media, and services (TMS), and travel and hospitality (TH).
The firm provides services in the fields of SAP services, agile analytics and information management,
application development and maintenance, business process management, cloud digital business
independent testing, and business technology consultancy. Names like Getronics, Sonoco, ABB, Elance, and Symantec are on the client list, along with consumer goods giant Samsung.
Broker’s Call
Broker House | ICICI Direct | HDFC Securities | Geojit Paribas |
BUY (INR) | 2954 | 2954 | 2915 |
Target (INR) | 3700 | 4855 | 3511 |
Upside | +25% | +19% | +20% |
Time Period | 12 Months | 12 Months | 12 Months |
ICICI Direct’s Views on Mindtree-
● LTI & Mindtree MergerAn all-stock merger between LTI and Mindtree has been announced by LTI and Mindtree. With a combined MCap of US$18 billion, The MergedCo will surpass TechM to rank as the
fifth-largest provider of IT services in India. As of FY22, the combined business will generate
US$3.5 billion (bn) in revenue. The combined firm will have a solid client base of more than 750
clients with a strong presence across continents and no overlap in terms of vertical mix.
● As of FY22, the combined company will have revenues of US$3.5 billion and EBIT and PAT
margins of 17.8% and 15.1%, respectively. With 81,719 employees, it will have access to a cash
reserve of US$991 million.
HDFC Securities’ Views-
● Strong Synergy : LTI has powerful supplementary qualifications in client mining (USD 20mn+
and USD 1mn+ logos have doubled in five years), and it has scaled competences (SAP, AWS,
Temenos) greatly, supported by enhanced tiering in partnerships and strong solutioning
(MOSAIC, Leni). MTCL’s digital capabilities, which span front-end/customer success and
strengths in Salesforce, Adobe, and Microsoft, are anticipated to complement LTI’s strong
sub-vertical capabilities (especially inside BFSI).
● Delivery operations can be enhanced and optimised with better delivery presence (minimal
centre overlap in North America) and delivery centre consolidation (overlaps in India and
Europe).
● Although the departure of LTI’s CEO could be seen as a risk, we shouldn’t ignore MTCL’s
turnaround history and its strong CEO approval rating (both operational and growth). The
groundwork for “tier 1” IT growth leadership has been laid, despite the potential instability
brought on by near-term noise.
Geojit’s Views on Mindtree-
● In Q4FY22, revenue increased by 37.4% YoY to Rs. 2,897cr, helped by widespread growth
across segments. The CMT business increased 5.2 percent sequentially among the verticals,
propelled by product engineering and customisation, digital marketing, etc. Due to a ramp down
in a retail client, RCM business was down 2.4 percent sequentially (+36.5 percent YoY).
About the Author
Ketan Sonalkar (SEBI Rgn No INA000011255)
Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.
Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice
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