Our target price for Asian Paints of Rs2,100 is based on 45x Mar-27E consolidated EPS. Our target multiple is set at a 10% discount to the stock's last 10-year average P/E, which we believe may be warranted given the increasing competitive intensity.

Risks that could sustain the shares above our target price include: 1) a sharp improvement in consumer sentiment and/or better-than-expected decorative paints growth could boost overall revenues and consequently profitability; 2) a substantial correction in material costs such as crude oil derivatives/TiO2, or a favorable currency may be positive (directionally, an appreciating rupee aids profit growth as around a third of Asian Paints’ inputs are imported); and 3) recovery in overseas profitability or benefits of scale in home improvement/décor initiatives could be positives at the margin.

Risks that could push the stock below our target price include: 1) higher-than-expected pricing led competitive intensity; 2) continued volatility in the economy could impact demand; 3) unrelenting pressure from inflationary input costs could further dent margins and/or demand; and 4) any adverse news around the promoter group, pledge shares, block trades, etc. could weigh on the stock price.