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Asian Paints - A comprehensive beat on all fronts

ICICIdirect Research 27 Jul 2022 DISCLAIMER

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.

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