Q4FY23 Review: Asian Paints: Gross margin boost drives Ebitda beat

12 May 2023 , 10:31 AM

In Q4FY23, APNT exceeded IIFL Capital Services’ estimates on Ebitda, clocking margin of 21.2%, up ~300bps YoY on the back of moderation in raw material prices. Sales growth rebounded to 11% YoY from 1% in Q3. Going ahead they expect revenue growth to return to normal level of low-mid double digit as price effect wanes completely.

Ebitda above estimates: 

APNT in Q4FY23 reported sales growth of 11% YoY largely in-line with estimates. Standalone revenue grew by 13% YoY driven by volume growth of 16%. Consol. Ebitda margin of 21.2% expanded by ~300bps YoY (above IIFLe of 19%) due to gross margin expansion of ~400bps on the back of material deflation of ~9% and sourcing/ formulation efficiencies.

Return to normalcy in growth: 

Revenue growth in FY22/23 was strong at 36%/20% YoY driven by volume growth of 31%/14% with pricing plus mix contributing ~5-6%. However, going ahead analysts of IIFL Capital Services think that the growth will return to normal levels to the tune of low-mid double digit mirroring the growth of paints industry led largely by volumes. On the back of this, for FY24/25 we are forecasting APNT’s revenue to grow by 11.5%/13% YoY. This will be supported further by company’s efforts to increase distribution network by 10% and increase contribution from high growth home décor business which currently at 4% of total revenue is expected to contribute ~2% of growth in FY24.

FY24/25 EPS upgrade by 5%/3%: 

IIFL Capital Services’ analysts upgrade comes on the back of higher revenue growth plus Ebitda margin increase in FY24 to factor in the beat in Q4. They forecast FY24/25 Ebitda margin of 20.4%/20.5%. APNT has been growing ahead of industry led by its efforts around distribution expansion, product innovation and market share gains from unorganised players. However, analysts of IIFL Capital Services maintain REDUCE rating on the stock due to potential increase in competition from Grasim plus resurgence of unorganised amidst challenging valuations of 52x FY25 EPS.