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ICICI Direct Report
As expected, Asian Paints Ltd.'s Q1 FY21 revenue, earnings declined due to washout of sales in April 2020 but approximately 14% YoY decorative volume growth in June 2020 was encouraging. Demand was largely supported by a pick-up in repainting/ maintenance activities in suburban and rural India, post relaxation from lockdown.
According to the management while tier II, tier III cities saw a strong demand recovery in Q1 FY21, demand recovery in metros, tier 1 cities (contribute approximately 40-50% in sales) was slower due to intermediary lockdowns especially in western regions.
On the raw material fronts, gross margins expanded approximately 110 basis points YoY but were down QoQ in similar lines mainly due to change in product mix. The favourable raw material prices movement on a month on month basis is likely to keep gross margins elevated for the coming quarter as well. This, coupled with rationalisation of other costs (like rents, advertisement and distribution expenses) would lead to a recovery in Ebitda margin (16.6% in Q1 FY21).
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