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Steady Volume growth; Positive Outlook ahead

Double digit volume growth but muted revenue: Asian Paints reported subdued topline in Q4FY24 as its revenue declined by 0.6% YoY/4.1% QoQ to Rs 8,730.8cr. Despite double digit volume growth of 10% from the decorative segment, its topline remained impacted due to price cuts, down trading and weak demand sentiments.

Gross margin steady but operating margin a miss: Its gross profit came in higher by 2.2% YoY but down by 3.9% QoQ to Rs 3,816cr and It posted an increase in gross margin by 121bps/10bps YoY/QoQ to 43.7% due to decline and stability in commodity price and sourcing & formulation efficiencies taken by the company. Further, EBITDA & margin remain impacted as it saw a decline of 9.3% YoY/17.7% QoQ to Rs 1,691cr and margins declined by 185bps/321bps YoY/QoQ to 19.4% due to increase towards brand spending and rise in other cost.

Steady numbers for FY24: Revenue grew by 2.9% YoY to Rs 35,494.7cr with decorative volume growth of 9% YoY and steady growth in the industrial segment. Its gross profit and EBITDA grew by 15.5% YoY/21.2% YoY and margin improved by 474bps/322bps YoY.

Decorative business witnessed growth: Decorative business continued to see double digit volume of 10% for the quarter driven by economy range and luxury range while premium product growth was muted. Also urban markets witnessed strong growth while rural markets grew slow because of inflationary pressure. Further, waterproofing is seeing good traction. They launched Neo Bharat Latex paints and also appointed Virat Kohli as its brand Ambassador for this campaign. Amongst segments, white teak and Weatherseal continues to grow led by strong product offerings, distribution reach and synergies with beautiful homes segment. Thus, its sales grew by 33% YoY to Rs 47.7cr and 63% YoY to Rs 15.6cr, respectively. Besides, its Kitchen & Bath segment remains impacted as it is a small player and faces stiff competition. Also weak demand and pickup is impacting sentiments for the company and it continues to post losses at PBT levels.

Capacity expansion on track: The company capacity expansion is on track. It has acquired land for expanding capacity of 4 lakh KL p.a. in Madhya Pradesh via Greenfield and the target is to bring into use by CY28. Besides, few brownfield expansions are expected across Kasna, Khandala wherein capacity of 1.2 lakh KL p.a. is expected as well as Ankleshwar and Mysuru project to be completed in the current year. Moreover, the company is looking for backward Integration for Vinyl Acetate Monomer and Vinyl Acetate Ethylene Emulsion /white cement expansion wherein civil work has started and expected commissioning by CY25-CY26.

Outlook & Valuation: Asian Paints reported strong volume growth despite high base however price cuts and increased brand spending impacted growth. However, going ahead, management remains optimistic given the signs of pickup in rural areas and also the focus remains on growing the bottom of the pyramid products which has strong opportunities. Further, they would continue with innovations, expanding reach for Home décor as well as strengthening industrial business while international business performance to be mixed. Also the focus remains on efficiency, improving product mix while fluctuation in raw material will be key monitorable ahead. On the financial front, we estimate its revenue/EBITDA/PAT to grow at 12.5%/16.2%/16.6% CAGR over FY24-26E. Further, we have maintained our Buy rating however, have revised the target price due to correction in stock price as well as valuation thus target price stands at Rs 3,465.

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