Asian paints delivers strong numbers - Morgan Stanley and ICICI Securities reiterate confidence among investors

Asian paints delivers strong numbers - Morgan Stanley and ICICI Securities reiterate confidence among investors

Morgan Stanley highlighted that Q2 FY21 for Asian Paints was extremely strong with double digit domestic volume growth. The domestic decorative business reported double digit volume growth against consensus estimate of 7-8% with demand picking up across regions. Management said that all the business segments continued to witness improving demand conditions on a progressive basis during the second quarter of this financial year. ICICi Securities said that Asian paints has recorded better than expected performance on the profitability front during Q2 FY21 given the challenging demand scenario with low discretionary spends

Asian Paints consolidation Revenue for Q2 FY21 has risen by 5.9% to Rs 5,350.23 cr from Rs 5,050.66 cr. Profit before depreciation, interest, tax and other income (PBDIT) for the group increased by 32.5 % to Rs 1,265.20 cr from Rs 954.82 cr. Profit Before Tax (from continuing operations) increased by 34.4% to Rs 1,145.52 cr from Rs 852.25 cr. Net Profit after Noncontrolling Interest (from continuing operations) increased by 0.5% to Rs 830.37 cr as compared to Rs 826.29 cr YoY.

Highlights of Q2 FY21 for Asian Paints

1) Consolidated Revenue from operations for the Quarter increases by 5.9%
2) Consolidated Profit Before Tax (from continuing operations) for the Quarter increases by 34.4%
3) Standalone Revenue from operations for the Quarter increases by 5.8%
4) Standalone Profit Before Tax for the Quarter increases by 33.7 %
5) Announces Interim Dividend of 335%

Management said that all the business segments continued to witness improving demand conditions on a progressive basis during the second quarter of this financial year. The Decorative business segment registered good volume growths for each of the months and therefore a healthy double digit volume growth for the quarter with demand picking up across regions. The other business segments in India including the two industrial coatings businesses and both the segments in the Home Improvement category also experienced improving trends in line with the phased out re-opening of the economy. The International business portfolio did well supported by favourable market conditions in Middle East, Africa and Asia, with the exception of Nepal, which continued to witness challenging business conditions due to the pandemic. Profitability across businesses was well supported by a better product mix, the stable raw material prices, favourable foreign exchange rate and the large number of cost optimization measures put in place by the Management of Asian Paints.

Morgan Stanley maintains an overweight rating on the stock with a price target of Rs 2300. They highlighted that Q2 FY21 for Asian Paints was extremely strong with double digit domestic volume growth. Reported consolidated revenue, EBITDA and adjusted PAT grew 6%, 33% and 1% respectively vs MS expectation of -10%, 0% and -3%. Consolidated Gross margin expanded by 200 bps and EBITDA margin expanded by 475 bps (YoY) vs MS expectation of 210 bps.

Domestic business revenues were up 6%. The domestic decorative business reported double digit volume growth against consensus estimate of 7-8% with demand picking up across regions.
Also, Industrial coatings business, home improvement business and international business experienced improving trends.

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ICICI Securities said that Asian paints performance was in line with our estimates on the revenue front, however the EBITDA margin and bottomline was much ahead of the expectation led by better gross margin and savings in other expenditures. Asian paints has recorded better than expected performance on the profitability front during Q2 FY21 given the challenging demand scenario with low discretionary spends. The double digit volume growth in the month could be on account of pent up demand across the regions as per our dealer check, barring western markets. Asian Paints, with its robust dealer network (~60,000 +) and strong supply chain is well placed amongst competitors to gain market share.

(Authored by Rahul Kamdar)