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Strong Q3FY24 numbers; Maintain Buy

Revenue growth driven by double digit volume growth in decorative segment: Asian Paints posted revenue of Rs 9,103.1cr, higher by 5.4% YoY and 7.4% QoQ in Q3FY24. The growth was largely driven by strong volume growth of 12% YoY and value growth of 5.5% from the decorative segment (82% of revenue) on the back of festive demand. Further, its automotive and industrial business (9.5% of revenue) continued to witness decent growth for Q3FY24 while its international business (8.5% of revenue) topline growth remained mixed with decent growth in Middle-East & Africa while subdued performance from Asian markets.

Strong improvement in YoY margins: Asian paints gross profit grew at a healthy pace of 19.2% YoY and 8% QoQ to Rs 3,969.5cr and margins improved by 504bps YoY and 24bps QoQ to 43.6%. Its EBITDA improved by 27.6% YoY and 19.8% QoQ to Rs 2,056.1cr and margins improved by 393bps YoY and 234bps QoQ to 22.6%. Additionally PAT too saw improvement of 34.5% YoY and 19.7% QoQ to Rs 1,475.2cr and margin improved by 350bps YoY and 167bps QoQ to 16.2%. The overall healthy improvement in margin can be attributed to moderation in raw material prices as compared to last year, better operating efficiency, improved product mix and robust profitability in industrial business.

Decorative Business witnessed steady growth: Overall decorative business steady growth with 12% YoY volume growth driven by urban market while early sign of recovery seen in rural markets. Further, improved product mix was because of double digit growth in luxury & economy range however premium range of products grew at a slower pace. Moreover, amongst decorative innovation continued through differentiated products, growth in waterproofing segment as well as institutional business such as builder segment, factories and government contracts seeing good traction contributed to the topline. Besides, the company is focusing on building brand by reinforcing digital & media presence as well as focusing on social marketing. Additionally, the Home décor business White Teak & Weatherseal is growing well, so also the portfolio is expanding as it is benefiting from synergies led by dealer network pan India. On the flip side, its Kitchen & bath segment growth is muted but the company is working towards improving it.

Performance by other segments: a) The company’s PPGAP/APPPG business continue to report double digit revenue growth of 12%/10% YoY to Rs 576cr/288cr driven by demand for refinish & Auto OEM segment as well as strong growth in Protective & Powder coating segments. Further, its PBT margins came at 22.2%/11.5% and grew strong by 40%/30% YoY to Rs 128cr/33cr in Q3FY24 led by sales mix and moderating raw material prices. b) For International business, its revenue was flat at Rs 779cr while it grew by 5.2% YoY in constant currency led by Middle East and Africa however, Asian markets performance remained muted on the back of uncertainties in Bangladesh, liquidity crunch in Nepal while some recovery was seen in Sri-lanka. Further, its profitability saw a healthy improvement of 58% YoY to Rs 58cr driven by operating efficiencies & moderating raw material prices.

Outlook & Valuation: Asian Paints posted strong numbers for Q3FY24 and going ahead government spending towards infrastructure & housing and demand from real-estate will continue to aid growth. Besides, a normal monsoon and moderating inflation will help the performance of the rural economy. Besides, the company’s focus remains on innovating differentiated products, growing the decorative segment along with scaling its Home décor as well as strong growth is expected from industrial, automotive and coating businesses. Further, improved product mix, efficiency measures and further easing of raw material prices will aid in margin improvement. On a financial front, we estimate its revenue/EBITDA/PAT to grow at 10.2%/21.3%/25% CAGR over FY23-26E and maintain a Buy rating with a target price of Rs 3,939.

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