Asian Paints rating – Buy: Stellar performance by decorative business

General, we imagine APL’s operational prowess and market management will assist it proceed to drive quantity development. Preserve Purchase with revised TP of Rs 3,185.

Asian Paints’ (APL’s) Q4FY21 consolidated income (up 43.5% y-o-y) beat our expectations, whereas Ebitda (up 53.4% y-o-y) and PAT (up 81.1% y-o-y) got here beneath our estimates. The Ornamental enterprise clocked multi-quarter excessive quantity development (48% y-o-y on gentle base of ~1% y-o-y) led by a robust efficiency within the premium and luxurious portfolios. Inflation in uncooked materials costs led to gross margin compression of 266bps y-o-y, although on a softer base. In the meantime, price optimisation and enhancements in sourcing lifted Ebitda margin by 128bps YoY.

General, we imagine APL’s operational prowess and market management will assist it proceed to drive quantity development. Preserve Purchase with revised TP of Rs 3,185.

Premium and luxurious portfolios drive volumes: Standalone gross sales grew 46.2% y-o-y, persevering with its spectacular run. The home ornamental enterprise delivered a stellar efficiency, registering 48% y-o-y quantity development. The house enchancment enterprise additionally clocked report gross sales aided by the house décor enterprise (EssEss’s income up 83.9% y-y and Modern’s 78.1% y-o-y). The Industrial coatings enterprise delivered a strong efficiency in protecting coatings and re-finish segments supported by the uptick in industrial exercise. The worldwide enterprise continued to report distinctive double-digit quantity development, led by good development in Asia and the Center East. All in all, with the demand momentum sustaining, we anticipate APL’s robust double-digit quantity development in ornamental enterprise to maintain.

Q4FY21 convention name: Key takeaways: The corporate has taken a worth hike of two.8% efficient Might 1st. Tier 1 and a pair of cities noticed a pick-up in demand from Q3-end onwards. Tier 3 and different areas continued their robust momentum. The corporate is specializing in bettering volumes and growing the kitchen and tub enterprise to enrich its dwelling décor enterprise within the quick run and to step by step enhance profitability over medium time period.

Outlook: Shining vibrant – We anticipate double-digit development in ornamental volumes to maintain, driving potential demand shift from unorganised phase (~30%). This coupled with APL’s skill to boost costs ought to assist it preserve margin. Contemplating top-line outperformance, we’re elevating the TP to Rs 3,185 (from Rs 3,140); retain ‘BUY/SO’ (54.2x FY23E EPS).