PL First Cut - Asian Paints 2QFY24

PL First Cut – Asian Paints 2QFY24 – Amnish Aggarwal – Head of Research – Prabhudas Lilladher Pvt Ltd

Asian Paints 2QFY24 – Volumes impacted by late festival, Margins driven by lower input costs

(CMP: Rs2982 |Accumulate)

Financial highlights

> Consol Revenues grew by 0.2% YoY to Rs84.8bn (PLe: Rs91.3bn). Decorative volume grew by 6%; while Industrial Coatings business registered 1.1% growth

> Gross margins expanded by 764bps YoY to 43.4%.

> EBITDA grew by 39.8% YoY to Rs17.2bn (PLe:Rs19.2bn) Margins expanded by 573bps YoY to 20.2% (PLe:21.0%)

> Adj. PAT grew by 53.3% YoY to Rs12.3bn (PLe:Rs13.2bn)

> Standalone Revenues flat YoY to Rs73.4bn; Gross margins expanded by 823bps YoY to 44.1%; EBITDA margins expanded by 639bps YoY to 21.6%; Adj. PAT grew by 52% YoY to Rs11.6bn

> Imputed Sub: Sales grew by 2.1% YoY; EBITDA grew by 17.2% YoY;

Other Highlights

> IBD revenue declined by 3.9% in Q2 led by economic uncertainty & forex crisis in key markets of South Asia and Egypt however it was supported by good deliveries from the Middle East region.

> Industrial Business saw a strong double digit revenue growth led by strong growth in the Auto OE and General Industrial segments.

> Demand in Home Décor business was soft as consumer sentiment remain negative with slowdown in the Bath & Kitchen business., however continue to strengthen its position in home décor with new launches, network and store expansion

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APNT has reported numbers below our estimates. Volumes witnessed mid-single digit growth YoY on a base of 10% volume growth. Margin expanded by ~570bps aided by strong operational efforts and supported by easing inflation in raw material prices. Although festival season has been shifted to 3Q, home décor market has been slightly sluggish. Realisations has declined QoQ (-6% versus -3%) showing some deterioration in sales mix. We expect far better performance in 3Q given festival boost and low base (nil volume growth). We expect back ended returns given rich valuations pending Grasim’s entry in 4Q, Retain Accumulate .

Stock is trading at 51.6x/48.5x FY24/FY25 EPS.