Asian Paints Q2 Review - Raw Material Inflation Headwinds Remain; Long Term Story Intact: Axis Securities

Axis Securities Report

Asian Paints Ltd. revenue was above estimates as demand rose but higher input costs weighed on its margin.

The company delivered topline for Q2FY22 ahead of our and street estimates. However, on profitability front it grossly missed our and street estimates on the back of an unprecedented 18-20% inflation level seen in its raw material basket.

Consolidated revenue growth of 32.6% at Rs 7,096 crore beat our estimate, which was led by strong volume and growth.

In Q2FY22, volumes grew at a strong 34% in the domestic decorative paints segment driven by healthy demand momentum post May 2021 impacted by the second wave.

Robust revenue growth in Q2FY22 was driven by demand recovery in urban, Tier1/2 cities even as demand in rural areas sustained. Pick-up in projects business, and healthy performance across home improvement businesses too supported growth.

Steep inflation in raw materials impacted the Core Ebitda/PAT growth which declined by 28.5%/29% respectively at Rs 904 crore and Rs 605 crore, respectively for Q2FY22.

Gross margins contracted 966 basis points bps YoY to 34.7% (39.7% our estimate). This dragged the Ebitda margins which contracted by over 1000 basis points to 12.7% (19.2% our estimate), the lowest in the last 5 years.

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