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Motilal Oswal Report
Asian Paints Ltd. Q2 earnings - While the sales growth trend was healthy and the outlook remains positive, the lowest Ebitda margins in 50 quarters led to a ~38% miss on our forecasts at the Ebitda and Profit after Tax levels.
The management stated that material cost inflation was the highest in four decades, and it expects this trend to persist over the near term. Further price hikes (in addition to a 4% increase in Q2 FY22 and 3.5% increase in Q1 FY22), cost savings, and raw material substitution could mitigate the sequential impact going forward.
While the demand outlook remains strong, the company is also confronted with a higher base in H2 FY22, with sales growth of 25.2%/43.5% in Q3 FY21/Q4 FY21.
The company's focus on topline growth and ensuing market share gains would lead to healthy earnings over the medium-to-long term. Nonetheless, earnings for the next few quarters would be affected by intense margin pressure.
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