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Revenue in line; beat on margins

* Asian Paints (APNT) reported 18% YoY consolidated revenue growth in 1QFY27 (vs. flat growth in 1QFY26), while standalone revenue grew 17% YoY. Domestic decorative volumes increased 9% YoY (est. 12%), partly impacted by channel up-stocking ahead of price hikes in 4Q. Management indicated that demand was healthy during the quarter and there was no meaningful inventory build-up. It expects demand to remain healthy in 2Q, supported by the festive season, and reiterated its FY27 volume growth guidance of 8–10%. International business delivered strong 27% YoY (20% in CC terms).

* Gross margin expanded 90bp YoY to 43.6% (est. 42.4%), aided by low-cost inventory carried over from the last quarter. The company witnessed 25% RM inflation and a 7-8% weighted average price increase (~4% realized pricing and ~3% favorable mix in 1Q). It implemented ~12% calibrated price hikes during the quarter and may take further pricing actions if needed. Realizations will depend on the product mix, as price hikes varied across categories. Management expects a weighted average price hike of 8-9% in 2QFY27, while 2HFY27 will depend on raw material inflation.

* EBITDA margin expanded 240bp YoY to 20.6% (est. 18.4%), driven by operating leverage. EBITDA increased 34% YoY to INR21.7b (est. INR19.2b). However, the higher-cost inventory is likely to weigh on margins in 2Q. Management maintained its FY27 EBITDA margin guidance of 18-20%, supported by premiumization, cost savings, and backward integration benefits. We model 20.4%/20.6% standalone and 19.1%/19.4% consolidated EBITDA margins for FY27/FY28.

* Given the volatile geopolitical backdrop, inflationary pressures are likely to remain elevated. Price hikes are reshaping the P&L structure, with revenue growth expected to remain strong, supported by double-digit price hikes. However, given the input cost inflation and stiff competition, margin expansion is likely to remain muted in the near term. The company is focusing on product innovation, brand salience, regionalization, and execution excellence to negate competitive pressure. We reiterate our Neutral rating with a TP of INR3,050.

Healthy 9% volume growth; beat on margins

* Domestic volume up 9%: APNT reported consol. net sales growth of 18% YoY to INR105.4b. (est. INR104.1b). Decorative business (India) clocked value growth of 17% and volume growth of 9% (est. 12%, 12% in 4QFY26). Industrial segment clocked mid-teen growth (+16% YoY). The bath business declined 4% and the kitchen business revenue grew 10%. White Teak business revenue declined 7%, while Weather Seal revenue rose 11%.

* International witnessed strong momentum: International business registered a value growth of 27% (20% growth in CC terms), backed by steady performance in Egypt, UAE, Oman, Nepal, and Bangladesh.

* Better margin delivery: Gross margin expanded 90bp YoY to 43.6% (est. 42.4%). GP grew 20% YoY to INR46b (est. INR44.2b). Employee expenses rose 12% YoY, while other expenses rose 10% YoY. EBITDA margin expanded 240bp YoY to 20.6% (est. 18.4%).

* Robust growth in profitability: EBITDA grew 33% YoY to INR21.7b (est. INR19.2b). PBT grew 40% YoY to INR20.6b (est. INR17.1b). Adj. PAT grew 40% YoY to INR15.4b (est. INR12.9b).

Key highlights from the management commentary

* Recent supply chain disruptions benefited larger organized players. The company’s strong supply chain and extensive distribution network enabled it to capture incremental demand while smaller players faced supply constraints. As a result, the company is expected to outpace industry growth.

* Growth in rural markets and the B2B segment helped offset relatively weaker demand in Tier-1 and Tier-2 cities, and the company believes demand could have reached double-digit growth under more favorable conditions.

* New products contributed to ~17% of overall revenues. New launches are more focused on premium and luxury segments. Innovation revenue includes products launched over the last three years. New launches span emulsions, construction chemicals, waterproofing, and premium/luxury offerings.

* The VAM-VAE project remains on track, with the first phase expected to be commissioned in 2QFY27. It has an annual production capacity of 1,00,000MT (VAM) and 1,50,000MT (VAE). Management highlighted that the project should continue delivering 300–500bp of gross margin benefit for products utilizing the in-house emulsion, although the exact benefit will depend on sourcing economics and product formulations.

Valuation and view

* We increase our EPS estimates by 3% for FY27 and FY28, supported by better delivery of margins.

* Given the volatile geopolitical backdrop, inflationary pressures are likely to remain elevated. Price hikes are reshaping the P&L structure, with revenue growth expected to remain strong, supported by a double-digit price hike. However, given the input cost inflation and stiff competition, margins could remain under pressure for the near term. The company is focusing on product innovation, brand salience, regionalization, and execution excellence to negate competitive pressure.

* We model 9% volume and 16% standalone revenue growth for FY27. Management maintains EBITDA margin guidance of 18-20%, supported by premiumization, cost efficiencies, and backward integration benefits. We model 20.4%/20.6% standalone and 19.1%/19.4% consolidated EBITDA margins for FY27/FY28. We value the company at 50x FY28E EPS to arrive at a TP of INR3,050. We reiterate our Neutral rating.

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