Asian Paints Q4 Results Review - Ending The Year On A High Note: Motilal Oswal

Motilal Oswal Report

Asian Paints Ltd. reported strong volume growth of ~16% in Q4 FY23 (our estimate: 6%) and ~14% in FY23. The management also indicated that all the segments, i.e., economy, premium and luxury, grew in double digits, with both urban and rural markets performing well.

Improvement in gross margin was led by a softening in raw material prices (deflated ~4% YoY), sourcing efficiencies and a decent product mix. With raw material prices being more or less stable, we expect gross margin to be at normative levels. The management has guided for Ebitda margin in the range of 18-20%.

Although sharp input cost reductions could lead to healthy earnings growth, Asian Paints’ valuations are fair at 57.8 times FY24E and 50.3 times FY25E earnings per share.

Key highlights from the management commentary

• At present, the overall market size is ~Rs 700-750 billion and the management expects it to grow to Rs 1000 billion in the next five years.

• Asian Paints delivered a strong performance in Q4 and FY23, led by strong double-digit volume growth of ~16%.

• Unorganised players lost market share amid the stressed environment due to supply chain issues. However, with a stable environment now, they would regain their share and the market share ratio would be back to 65- 70% organized and 35-30% unorganised.

• Asian Paints now has ~150,000 retail points. The management targets to add 10,000-15,000 retail points in FY24, mainly in small cities and suburbs of large cities.

• The company did ~250 innovations in the past seven years, which contribute more than 10% to the total turnover.

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