Reviews
In this edition, we have reviewed Asian Paints Ltd and Housing Development Finance Corporation Ltd. We suggest our reader-investors to HOLD Asian Paints Ltd and Housing Development Finance Corporation Ltd
We had recommended Asian Paints in Volume 36, Issue No 13 dated May 24 to June 06, 2021, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹2,816.65. We had recommended the stock based on new product launches, low debt-to-equity ratio and good returns on capital employed. For 25 years, Asian Paints became a corporate force and India's leading paint company. Since 1967, the company has dominated the paint market because of its strong customer focus and inventive attitude. It has grown to be twice as big as any other paint business in India. In addition to producing a wide variety of paints for both ornamental and industrial purposes, Asian Paints also produces wall coverings, adhesives, and services.
Analysing the performance of the company during the recent quarter, the net sales for Q2FY23 were recorded at ₹8,430.60 crore as compared to ₹7,036.51 crore reported in the last quarter. The operating profit also saw a rise of 26.9 per cent and was recorded at ₹1,323.17 crore in Q2FY23 as against ₹1,042.65 crore in Q2FY22. The quarterly net profit for Q2FY23 stood at ₹781.74 crore, up 31.39 per cent, from the Q2FY22 net profit of ₹594.97 crore.
On an annual basis, the figure showed a rise too. The net sales increased by 34.62 per cent to ₹28,923.48 crore in FY23 from ₹21,485.20 crore in FY22. The operating profit likewise jumped to ₹5,183.62 crore in FY23 from ₹5,158.65 crore in FY22. The net profit on the other hand reported a slight decline in FY23 and stood at ₹3,053.24 crore, as compared to a net profit of ₹3,178.15 crore reported in FY22.
Asian Paints plan to invest over ₹6,750 crore over the next 3 years. ₹3,400 crore will go toward capacity enhancement for increasing the in-house paint manufacturing capacity by more than 30 per cent to 22.7 lakh KL per annum. Asian paints continue to see strong double-digit volume and value growth in India decorative paints, on a 3-year CAGR basis.
The company is acquiring Harind, which is a speciality chemicals company which has NextGen nanotechnology at its core. It is in the business of nanotechnologybased research, manufacturing and sale of a range of additives and specialised coatings. Harind had a turnover of ₹23 crore in FY22. The acquisition will help Asian paints in its R&D to bring innovative NextGen products. The company will also acquire a 51.0 per cent stake in Harind at about ₹12.75 crore, while an additional stake of 39.0 per cent will be acquired over the next five years. Hence, we recommend HOLD.
We had recommended Housing Development Finance Corporation Ltd in Volume 36, Issue No. 11 dated April 26, 2021, to May 09, 2022, under the ‘Cover Story’ segment. The recommended price for the stock was ₹2,573.55. We had recommended the stock on account of improving asset quality, margin expansion, and robust individual disbursement. In India, HDFC is a prominent provider of housing financing. It has also undertaken several consultancy assignments in housing finance in various countries across Asia, Africa and East Europe. It also has global representative offices in Dubai, London and Singapore offering loans to NRIs and people with Indian origins.
Analysing the performance of the company during the recent quarter, the interest income for Q1FY23 was recorded at ₹12,457.97 crore as compared to ₹10,956.90 crore reported in the same quarter last year. The Total Income has dropped from ₹30,997.13 crore in Q1FY22 to ₹23,193.32 crore in the previous quarter. The PAT for Q1FY23 is ₹5,574.01 crore, up 1.7 per cent, from the Q1FY22 PAT of ₹5,310.92 crore. Gross NPA’s decreased to 1.78 per cent in Q1FY23 from 2.24 per cent in Q1FY22.
On the annual front, the interest income has increased from ₹42,771.96 crore in FY21 to ₹43,297.21 crore in FY22. The total income reported has weakened for FY22 and stood at ₹1,35,968.08 crore, as compared to the total income of ₹1,39,071.24 crore reported in FY21. The net profit for the period exhibited a decent gain of 11.1 per cent and stood at ₹15,072.34 crore in FY22 from ₹13,556.08 crore in FY21. Gross NPA for FY22 was 1.61 per cent whereas for FY21 the number was 2.7 per cent.
The company has maintained its market leadership position as a top three life insurer across individual and group businesses. Deposits as of the quarter end amounted to ₹1,70,823 crore and constitute 33 per cent of the borrowings. The management highlighted two points, firstly that a strong pipeline in the non-Individual segment, will translate into healthy AUM growth.
Secondly, double-digit growth in the non-individual loan book is very much on the cards. Due to dividends collected from HDFC AMC, HDFCLIFE, and Credila, dividend income has increased this year. The corporation also recorded a higher dividend yield of 39.6 per cent as compared to the previous year of 34.5 per cent. Non-individual loans grew by 8 per cent YoY. Hence, we recommend HOLD.