Asian Paints Q3 Results Review - Strong Volume, Margin Delivery With Positive Near-Term Outlook: Systematix

Systematix Research Report

Asian Paints Ltd. delivered a revenue/Ebitda/profit after tax growth of 5.4%/27.6%/34.5%, a beat on consensus earnings with better-than-expected volume and margin performance, partially offset by inferior mix and muted international business.

Volume growth in decorative paints sustained the four-year trajectory ~15% coming in at 12% for Q3, despite some relative softening post the strong festive season led by a pick-up in tier III, IV and rural markets.

A deterioration in mix in favor of economy products and a 1% price cut led to a lower growth in value terms. Margins reached multi-year highs given continued material deflation.

Going forward, Asian Paints expects to sustain a double-digit volume growth which should help deliver a high single-digit revenue growth for the next four-five quarters.

We believe the management guidance of 18-20% Ebitda margins looks conservative in light of continued weakness in input prices.

Gross margin cushion to significantly increase brand building spends, aggressive thrust on innovative products and services, upcoming backward integration projects from CY26 and strong scale-up in home décor business should position the company in a strong position to tackle impending competition in the paints space and protect its market share in our view.

The stock is currently trading at 54 times FY25 and 49 times FY26 consensus earnings for a 10%/15% expected revenue/earnings per share compound annual growth rate over FY23-26 with 27-28% expected return on equity.

We see the current demand trends sustaining in addition to some upgrades to consensus estimated on the margin front. Despite competition and valuation headwinds, we see the stock sustaining current multiples given the positive volume and margin outlook.

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