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Asian paints (APNT), is engaged in the business of manufacturing, selling and distribution of paints and related product to home décor. APNT is the market leader in the Indian paint manufacturing industry.

• Top-line growth of 54% YoY in Q1FY23, driven by robust volume growth of 37% YoY, was better than our estimate.

• Product mix improved during Q1FY23 with higher sales of economy & luxury emulsion and premium water proofing & wood finishes.

• EBITDA margin improved by 172bps YoY to 18.1% due to the calibrated effect of price hikes. In Q1, APNT took 2% price hike and will take 0.5% hike in Aug’22 to mitigate cost pressure.

• The company remain focussed on gain in market share, new product offerings, and increasing distribution reach as the long term story remain intact.

• Consistent volume growth and market share gain will help the company to achieve revenue and PAT CAGR of 15%/29% respectively over FY22-FY24E. We therefore, reiterate Buy rating on the stock with an upward revision in TP to Rs. 3,502 based on a P/E of 62x on FY24E EPS.

Double digit volume to continue...

APNT reported revenue growth of 54.1% YoY as volume trend remain resilient at 37% supported by new launches and demand for economy & luxury emulsion and premium water proofing & wood finishes. The volume and value growth at 20% 4year CAGR during Q1FY23.Tier1/2 cities saw strong double digit growth especially in luxury and premium range and continued to grow faster than T3/T4 cities. During the quarter, the company has launched 10 new products and added more than 5,000 new retailing network. We expect volume to continue to grow at double digit due to expansion in dealer network, upcoming marriage and festival season. Accordingly, we increase FY23/FY24 revenue estimate by ~7%.

RM inflation is expected to ease...

The management expect inflationary trend on raw material prices to ease from H2FY23 and in Q2 inflation estimated to be in low single digit supported by moderation in oil prices. In Q1FY23, gross margin contracted 73bps YoY to 37.7% while EBITDA margin improved by 172bps YoY to 18.1% due to judicious spending. During the last 4 quarters, the company has taken a price hike of 22% and would continue to take calibrated price increase to offset impact of inflation. APNT expects gross margin to be in the range of 38% to 40% till RM prices moderate and macro situation improve.

Key con-call highlights

• Kitchen and Bath business delivered Rs100cr for the last 3 to 4 quarters supported by strong network expansion.

• International business grew by ~16% YoY supported by double digit volume despite macro headwinds from Sri Lanka and Egypt.

• APNT plans Rs. 800cr CAPEX in FY23, largely brownfield expansion .

Valuations

Consistent volume growth and market share gain will help company to achieve revenue and PAT growth. Also, raw material inflation is likely to moderate in H2FY23. Accordingly, we increase EPS estimate of FY23E/ FY24E by 10%/7% respectively. We value APNT at a P/E of 62x on FY24E EPS and reiterate Buy rating with a TP of Rs. 3,502.

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