Result Analysis – Asian Paints

Result Highlight:

• Consolidated Revenue of Asian Paints for Q3FY22 grew 25.6% YoY at Rs 8527 Crore beats the street estimates of Rs 8500 Crore.

• Sequentially Revenue and Profit after Tax rose 20% and 70% respectively.

• Net profit is down 18.5% YoY to Rs 1031 crore is below the estimates of Rs. 1140 Crore impacted by higher cost of goods sold.

• EBITDA margin improved sequentially to 18% in Q3FY22 on multiple price hike in the month of November and December. 15% additional Price increase taken in Q3 with 7% already taken in Q1 and Q2

• Raw Material cost as % of sales down to 47.9% from 64.4% in Q2FY22 however still up from 42.6% in Q3FY21.

• Market share gains of 2.7% in Quarter 2 and the trend to continue in Quarter 3 from unorganized sector

• The domestic Decorative business registered double digit growth with a 18% volume growth.

• Volume growth led by strong growth from T1/T2 centers across region

• Premium and Luxury space outgrowing the Economy space in a big way. New launches in the Luxury space doing well

• Smartcare Waterproofing growth trajectory continued; registering 50%+ growth consistently

• Gaining strongly in the Wood Finishes category; Premiumization drive across Rurban markets

 Management commentary: Amit Syngle, Managing Director & CEO 

• The domestic Decorative business registered yet another strong double digit growth performance, five quarters in a row, with a 18% volume growth, on a strong base of the previous year.

• The Industrial Coatings business also registered a robust double digit revenue growth especially in the Protective Coatings segment. However, the automotive coatings business was impacted by the challenges facing the automotive sector.

• The Home Improvement business continued its streak of healthy growth and registered another solid performance, with a steady expansion trajectory across the country.

• International Business registered a 9% value growth and was impacted by sluggish market conditions in most of the units in Middle East and specific challenges like civil unrest in Ethiopia and forex crisis in Sri Lanka

• Don’t directly impact by crude oil prices. Its crude derivates which impacts most.

Guidance:

• For the 4th Quarter, January month demand conditions slow given many state level restrictions; However, demand conditions expected to better for second half of Feb and month of March

• Uptrend in housing construction sector provides support

• Experience over last waves of covid demonstrates that there is deferment of demand and hence Jan & Feb demand to be part of the pent-up demand from March onwards till Q1 next year

• Raw Material inflationary trend expected to continue; albeit rate of increase expected to be moderate in Q4

• In International portfolio, forex tightness, regional disturbance and sluggish growth in some key markets a concern

Outlook:

Asian Paint reported strong volume growth in Q3FY22. Margins are improved sequentially with multiple price hikes taken by the company during the quarter. Gaining market share from organized and Unorganized players is big positive for the company. Further, the company continues to expand its categories from paints to overall home decoration segments which would help it to create new growth levers for future growth. In near term the Paint industry is likely to witness headwinds related to high RM. EBITDA margin level of the company is expected to bottomed out in Q2FY22 and expected to remain at Q3 level till Q4FY22 or improve with more price hikes. We have a positive outlook on the company for medium to long term. Hence, we would recommend investors to buy the stock at CMP of Rs.3300 for the Target price of Rs. 3700.

Source: BSE, Bloomberg Quint, EW Research

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