Asian Paints surges 11% on strong revenue growth in Q4

Shares of Asian Paints moved higher by 11 per cent to Rs 2,839 on the BSE in intra-day trade on Friday after the company reported a strong 44 per cent year-on-year (YoY) revenue growth at Rs 6,651 crore in the March 2021 quarter (Q4FY21), led by a 48 per cent YoY volume growth in the decorative segment. The stock had hit a record high of Rs 2,871 on January 11, 2021.

The higher revenue growth was led by pent-up demand, especially as demand in Tier I cities recovered sequentially; recovery in the Project business; and gain in market share from organised and unorganised peers. A soft base also aided the figure.

The company’s profit after tax (PAT) during the quarter under review increased by 81 per cent YoY to Rs 870 crore. Earnings before interest, taxes, depreciation and amortization (EBITDA) grew by 53.4 per cent YoY to Rs 1,318 crore. On the margin front, while no price hike in Q4 weighed on gross margins (down around 266 basis points (bps) YoY), savings in employee and other costs to the tune of 100 bps and 290 bps YoY, respectively, led to a 127 bps YoY increase in EBITDA margin.

The management said the domestic decorative business delivered a stellar performance, registering a 48 per cent volume growth in the quarter, led by robust growth in the premium and luxury product range. The huge inflationary trend in raw material prices has been worrying, however, its impact on profitability has been negated with some path-breaking work on sourcing and cost optimization, it said.

“With strong topline growth in Q4, Asian Paints managed to clock a 7 per cent YoY revenue growth in FY21 despite lower sales in the June 2020 quarter (Q1FY21). The company reported bottom-line growth of 15 per cent YoY in FY21 led by a 100 bps YoY increase in EBITDA margin (at 22 per cent). We believe strong decorative volume growth of Asian Paints would be largely on the back of its robust dealer network (~70,000 +), strong supply chain and market share gains from unorganised or regional players,” ICICI Securities said in a note.

We continue to believe in the inherent strength of Asian Paints considering its 80 years old business legacy, strong balance sheet and its supply chain networks, the brokerage said, adding that this has not only helped the company to come out strongly from the lockdown disruptions but also register market share gains.