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Asian Paints - A comprehensive beat on all fronts
Buzzing:
Asian paints continued its journey of robust revenue growth in Q1FY23 as well, with positive surprise in volume growth.
Context:
Asian paints topline growth of 54% YoY to | 8607 crore in Q1FY23 was led by strong decorative volume growth of 37% YoY. The volume growth was much ahead of street expectation (considering it came on a base growth of 106%). Continued demand from tier III & tier IV cities, market share gains and aggressive product launches drove the overall volume growth. On the margin front, despite a steep price hike (~2% QoQ) gross margin contracted by 73 bps YoY (100 bps QoQ), suggesting continued input cost pressure and higher sales of economic products. However, improved operating leverage drove EBITDA margin up by 172 bps YoY to 18.1%. Accounting for one-time exceptional loss (forex loss in Sri Lanka) of Rs 24 crore the PAT came at Rs 1054 crore, up 84% YoY.
Our perspective:
We believe, Asian paints Q1FY23 performance was a comprehensive beat led by strong volume growth. This is despite a sharp price hike of ~25% over last years (~2% QoQ). This reconfirms our belief that the structural demand drivers such as 'shortening of repainting cycle’ and ‘revival in housing sector' are in place. We build in volume CAGR at 12% in FY22-24E supported by new product launches and dealer addition across geographies. We believe, strong supply chain network and robust balance sheet of Asian paints provide enough cushion to safeguard its EBITDA margins going forward. We maintain our positive stance on the stock factoring in Asian Paints dominant position in the paint industry and limited damage to its margins from increasing competition.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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