Overall, we believe APL’s operational prowess and market leadership will help it continue to drive volume growth. Hold the purchase with a revised TP of 3,185 rupees.
Asian Paints (APL) consolidated revenue in Q4FY21 (+ 43.5% yoy) exceeded our expectations, while EBITDA (+ 53.4% yoy) and PAT (+ 81.1 % yoy) were lower than our estimates. The Decoration activity recorded high volume growth over several quarters (48% year-on-year on a flexible basis of around 1% year-on-year), driven by a solid performance of the premium and luxury portfolios. Inflation in commodity prices caused gross margin compression by 266 basis points year-on-year, but on a more moderate basis. At the same time, cost optimization and sourcing improvements increased EBITDA margin by 128 bps year-on-year.
Overall, we believe APL’s operational prowess and market leadership will help it continue to drive volume growth. Hold the purchase with a revised TP of 3,185 rupees.
High-end and luxury portfolios drive volumes: Autonomous sales grew 46.2% year-on-year, continuing their impressive growth. The interior design sector performed remarkably well, registering volume growth of 48% year-on-year. The home improvement business also posted record sales thanks to the interior design business (EssEss revenue up 83.9% yoy and Sleek 78.1% yoy). The Industrial Coatings business delivered a solid performance in the protective coatings and refinishing segments supported by the recovery in industrial activity. International business continued to post exceptional double-digit volume growth, driven by good growth in Asia and the Middle East. Overall, with demand momentum continuing, we expect APL’s strong double-digit volume growth in the home decor sector to continue.
T4FY21 Conference Call: Key Takeaways: The company took a 2.8% price hike effective May 1. Level 1 and 2 cities experienced a recovery in demand from the end of the third quarter. Tier 3 and other areas continued their strong momentum. The company is focusing on improving volumes and developing the kitchen and bathroom business to complement its short-term interior design business and gradually improve its profitability in the medium term.
Outlook: Brilliant – We expect double-digit growth in decorating volumes, offsetting the potential shift in demand from the unorganized segment (~ 30%). This, combined with APL’s ability to raise prices, should help it maintain its margin. Considering the outperformance of the top end, we are raising the TP to 3,185 rupees (compared to 3,140 rupees); keep “BUY / SO” (54.2x EPS FY23E).
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