Q3 benefits beat consensus expectation by a wide margin: (i) APNT delivered 33% decorative volume development, which was more than double that of Street expectations (ii) this rebound was also linked to demand revival in Metros and Tier 1 cities whilst demand remained robust in smaller sized towns. This also led to robust development in the premium and luxury segment (iii) demand was also distributed pretty much equally across 3 months (iv) consolidated sales/Ebitda/clean PAT grew 25.2%/ 50.3%/62% y-o-y (v) gross margin expanded by c207bp on superior mix, steady RM and sourcing and formulation efficiencies, whilst prudent price optimisation helped it provide c439bp Ebitda margin expansion (vi) Other enterprises also reported enhancing demand trends. International business enterprise registered robust double-digit top rated line development.
Key takeaways from conference contact: (i) Decorative volume development in Q3 was led by a mix of pent-up demand, festive and wedding sales and revival in projects business enterprise. Mgmt remains positive on delivering a healthier volume development in Q4 as well (ii) Asian Paints’ property décor business enterprise has received an encouraging initial response. APNT plans to double its retailer count (16 presently) (iii) whilst close to-term inflation is creating up in crucial inputs, Asian Paints aims to take a judicious method to pricing, and thinks the relative customer worth proposition is intact.
Why investors need to continue to remain positive: (i) Asian Paints is the dominant leader in the profitable decorative paints business, a structural winner with superior price economics (ii) the COVID-19 crisis has additional consolidated its competitive position helped by market place share acquire (iii) more than the medium term, it is also a crucial beneficiary of the premiumisation trend in the business (iv) we think demand remains robust and will continue to surprise positively (v) it is expanding its attain and portfolio to additional augment extended-term development.
Reiterate Buy with new TP of Rs 3,150: Asian Paints’ existing cost builds in extended-term earnings development of c15-16% which, in our view, is achievable provided the structural development of the category, which is also buttressed by close to-term robust earnings development momentum. We retain our Buy with a new TP of Rs 3,150 (from Rs 3,000).