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* Double-digit volume growth in Decorative segment: Asian paints reported consolidated revenue of Rs 9,182.3cr, higher by 6.7% YoY and 4.5% QoQ led by double digit volume growth of 10% in decorative segment. Volume growth of 10% in Q1FY24 was on and above the double digit growth in Q1FY23 which was 37% while in Q4FY23 it was 16%. Further urban and rural both grew in double digit and demand is picking up in rural.

* Significant improvement seen in margins as compared to YoY: Asian paints gross profit increased by 21.5% YoY and 5.6% QoQ to Rs 3,941.9cr while margins saw improvement of 523bps YoY and 44bps QoQ to 42.9%. The improvement was due to softening of raw material prices, operating efficiencies as well as product mix wherein strong growth was seen in economy and premium product segment while luxury growth was muted. Further, EBITDA improved by 36.3% YoY and 13.8% QoQ to Rs 2,121.3cr with EBITDA margins increased by 502bps and 188bps QoQ and reached to 23.1%. PAT too witnessed a strong growth of 52% YoY and 25.1% QoQ to Rs 1,574.8cr with PAT margin up by 511bps YoY and 283bps QoQ to 17.2%.

* Double-Digit growth in Industrial segment: The company’s PPGAP and APPPG business grew in double digit of 13.3% YoY and 21.6% YoY led by improving demand for Automotive OEM & Refinish segment and growth in protective segment. Further margins saw improvement led by softening raw material prices, improved sales mix and realization. Going ahead, management expects demand from Auto will continue with the launch of new cars, EV models and other variants, etc.

* Mixed sentiments in International market: International business sales in constant currency grew by 3.8% however sales and profit in rupee decreased by 1.4% YoY to Rs 695cr and by 30% YoY to Rs 26.5cr due to liquidity issues in key markets of Asia and Africa. Amongst regions, economic uncertainty & forex crisis in Bangladesh, High inflation & currency devaluation in Egypt and muted construction activity in Nepal impacted growth however strong double-digit growth was seen in the Middle East.

* New businesses gaining synergies in home decor: Mixed growth was seen amongst the home décor segment wherein new businesses like White Teak and Weatherseal gained strength while the bath and kitchen segment witnessed de-growth due to price increases last year. Further, White teak & Weatherseal business sales grew by 28.4% YoY to Rs 26cr from 9.8cr in Q1FY23. Additionally, the management plan is to scale up kitchen and bath business and also its focus on taking Home Décor business revenue to 8-10% of Decorative business by FY25-26 from ~3-4% in Q1FY24 is intact.

* Outlook & Valuation: We believe Asian paints being a leader will continue to benefit from industry tailwinds such as government focus on infrastructure & housing, longer festive season and better monsoons will aid growth for rural demand. Besides, its strong decorative product portfolio, continuous addition in segments in Home décor, pickup in Industrial segment and capacity expansion will continue to drive growth. Further, product mix and moderation in raw material will help margins to improve. On a financial front, revenue is expected to grow at 18% CAGR over FY23-25E and have increased margin estimated by 1-2% for FY24E & FY25E on the back of easing prices and operating efficiency which translate EBITDA/PAT to grow at 27.8%/30.8% CAGR over FY23-25E Consequently, our target price is revised upwards to Rs 3,939 (assigned a P/E of 53x i.e. its 10 years average) and have maintained a Buy rating.

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