Asian Paints (APNT) reported above expected revenue while higher than expected input cost inflation led to in-line PAT. Overall both decorative and industrial coatings business grew at high double-digit volume and value. Decorative coatings business benefited from continued strong demand momentum from tier 2/3/4 markets while demand from tier 1 and metros improved sequentially.
In international market; Asia, Middle East and Africa recorded double digit volume growth. Input cost inflation led to sharp contraction in gross margin. However, strict control over cost and operating leverage benefits contributed towards EBITDA margin expansion.
IDBI Capital has maintained earnings estimates for FY22-23E. "Our target stands at Rs 2,444 with a revised rating of Hold."
Key Highlights and Investment Rationale
Strong business recovery witnessed across categories/markets
Standalone revenue grew 46% YoY led by 48% YoY volume growth in domestic decorative coatings. Strong performance continued in tier 2/3/4 markets while demand in tier 1 and metro picked up further from 3QFY21. Home improvement business grew 84%YoY driven by c. 84%YoY revenue growth in Kitchen and Bath business respectively. In Industrial coatings; revenue from PPG-AP grew 39%YoY driven by recovery in auto sales while revenue from AP PPG grew 63% led growth supported by industrial liquid paints and powder coatings. Revenue from international business grew 30%YoY driven by strong double digit volume growth in Asia, Middle East and Africa.
Input cost impacts gross margins; cost control drives EBITDA margin
Gross Margin contracted by 266bp (after 7 consecutive quarter of expansion) due to input cost inflation. However, EBITDA Margins expanded 128bps to 19.8% due to strict cost control and operating leverage benefits.
Maintain our estimates; HOLD
"We maintain our earnings estimates for FY22-23E. Management expects overall demand to bounce back strongly. APNT has taken c. 2.8% price hike in May’21 to offset impact of inflationary raw material. We maintain our TP at Rs 2,444 while our revised rating stands at 'Hold'."
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