Q3FY24 Review: Asian Paints: Revenue lags estimate; Ebitda in-line

18 Jan 2024 , 11:51 AM

Asian Paints (APNT) reported a mixed set of numbers, with revenue below analysts of IIFL Capital Services estimates and in-line Ebitda. Revenue growth of 5.4% YoY (4% below IIFLe) was on the back of 12% volume growth in the Decorative business; mainly on account of festival mismatch normalisation. Management mentioned that the rural demand has improved in Q3, on the back of recovery in Tier 3 and Tier 4 markets and the overall rural is showing signs of early recovery. Analysts of IIFL Capital Services have cut their FY24-26 revenue estimates to factor in the Q3 miss while broadly maintaining Ebitda numbers. The stock is trading at 55x FY25 EPS and competition is expected to intensify. Maintain REDUCE. 

Revenue growth disappoints; Ebitda in-line: 

APNT reported a 5.4% YoY sales growth as against our estimate of 9.1%. This was driven by a 12% volume growth in Decorative as well as a double-digit industrial volume growth. Ebitda grew 27.6% YoY (in line with our estimates), with Ebitda margins at 22.6%; 95 bps above our estimates. Raw material prices continued to decline that resulted in gross margin expansion of 500bps YoY; in line with our estimates. PAT grew 35% YoY and was 10% above our estimates, due to lower depreciation and taxes. 

Double-digit volume growth to continue: 

Management expects double-digit volume growth to continue, while the value–volume gap is expected to be ~4% going forward. The company has taken price cuts of ~1.3% this year, with ~1% in Q3. Premiumisation, as a trend, is expected to continue in Decorative, while project business growth would be supported by increased government capex and increase spend in private infrastructure mainly towards factor buildings and metros. Despite the improved margins in the past few quarters that were primarily led by gross margin improvement, management has retained guidance of 18-20% in the medium term. 

Broadly maintain Ebitda estimates: 

Analysts of IIFL Capital Services have downgraded their revenue estimates by ~2-4% over FY24-26, so as to factor in the miss in Q3. However, analysts of IIFL Capital Services broadly maintain their Ebitda estimates going forward, taking some gross margin improvement.