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Steady revenue growth: Asian paints revenue for Q4FY23 grew by 11.3% YoY and 1.7% QoQ to Rs 8,787.3cr driven by double digit volume and value growth of both decorative and industrial segments. Further, its Home décor segment performance saw improvement with addition of new categories of fabrics, decorative lighting, UPVC doors and windows, while Kitchen and bath segments saw sluggish growth. For FY23, its consolidated revenue from sales grew by 18.8% YoY to Rs 34367.8cr while standalone revenue from sales grew by 19.8% YoY and volume growth of 14% to Rs 29,953.1cr.

Strong recovery in margins: Asian paints gross/EBITDA/PAT saw a strong growth of 22.2%/29/2%/44% YoY and 12.1%/15.7%/14.7% QoQ led by decrease in raw material cost and better operating efficiency. In addition, its Gross/EBITDA/PAT margin improved by 379bps/293bps/325bps YoY and 393bps/256bps/162bps QoQ. For FY23 as well its Gross/EBITDA/PAT margin witnessed an improvement of 154bps/164bps/156bps YoY while they stood at 38.7%/18.2%/12.2%, respectively.

International business continued to drive mixed growth: Sales in constant currency (cc) increased by 9.9% while in INR terms it posted a decline of 2.7% to Rs 794cr because of the mixed growth across international business. On one hand, Africa and Middle-East geographies posted strong growth of 11% & 25% in Q4FY23 while sales of Asia continued to be impacted due to economic crisis in Sri-lanka and political uncertainty in Nepal and forex concern in Bangladesh.

New business pickup well amongst the Home Décor segment: Asian paints new addition of White Teak and Weatherseal to its home décor business is gaining good traction and have seen strong growth for FY23 with sales increased to 108cr and 25cr. However, its kitchen (down by 21% to 98cr) and bath (down by 10% to Rs 96cr) segment sales were impacted due to low demand. Going ahead, the company plan is to strengthen all businesses by increasing retail footprint and for its kitchen and bath segment along with its focus on expanding reach they would also focus on premiumization of products

Concall Highlights: 1) Along with demand from housing, strong demand was seen from construction activity and government contracts mainly for waterproofing. 2) Innovation contributes to 10% of the revenue. 3) The company’s home décor store and safe painting idea differentiates it from other players. 4) Plan is to take Home Décor business revenue to 8-10% of Decorative Business by FY26. 5) Companies recent acquired for uPVC window & doors (Weatherseal) and White Teak for designer lighting solutions both have witnessed strong growth in the quarter and increasing retail footprint. 6) For Kitchen business modular segment pickup well while components and hardware seen muted demand. 7) Work on capacity expansion and backward integration initiatives progressing well. 8) It caters to 1.5lakh retail distribution touch points and will continue to increase going ahead.

Outlook & Valuation: Overall paint sector will continue to benefit from government focus on investment in infrastructure and housing activity as well as strong demand environment from industrial and commercial sectors. We believe Asian paints being a leader will continue to benefit from industry tailwinds as well as its strong product portfolio, foray into allied sectors and new launches across segments will continue to drive growth for the company. Additionally, its focus on home décor business and adding premium products, investment in B2B business and increasing distribution reach will aid in increasing customer base. On a financial front, we have estimated its revenue/EBITDA/PAT to grow at 18%/23.9%/26.8% CAGR over FY23-25E and have maintained a Buy rating with a target price of Rs 3,614 assigning a P/E of 53x FY25E EPS.

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