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Asian Paints Q4FY22 Review: Strong volume growth, pressure on margin continues…
What’s Buzzing
Asian Paints reported strong revenue growth of ~19% YoY in Q4FY22, with surprise in volume growth. Margins as expected stayed under pressure on higher RM cost & adverse product mix.
Context
Asian Paint’s topline growth of 19% YoY Rs 7893 crore in Q4FY22 was supported by 8% volume growth and ~10% of realisation growth. The volume growth was much ahead of Street expectation as it came on the base 48% growth. 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 (of 21% in FY22) gross margin contracted ~448 bps, suggesting continued input cost pressure and deteriorating product mix. However, improved operating leverage limited EBITDA margin fall at 153 bps YoY to 18.3%. Accounting for one-time exceptional loss (forex loss/impairment in Sri Lanka) of Rs 115 crore PAT came in at Rs 874 crore, flat YoY.
Our Perspective
Despite a sharp price hike and a strong base, Asian Paints reported strong volume growth in Q4FY22. This reconfirms our belief that the structural demand drivers such as ‘shortening of repainting cycle’ and ‘revival in housing sector’ are in place. However, we build in a moderate volume CAGR at 11% in FY22-24E (vs. 15% in FY17-22) considering sharp price hike will hurt rural demand. We also believe further price hike (company plans to take further price hike of 5-7% in Q1FY23 addition to 21% price hike in FY22) can lead to a risk of downtrading, which can slow-down gross margin recovery. We believe gross margin expansion is a key trigger for a further re-rating of the stock.
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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