Asian Paints Q2 Review - Volume Up 34%, Margins Cracked Due To Inflation: Centrum Broking
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Centrum Broking Report
Asian Paints Ltd.'s Q2 FY22 numbers were below estimates. Consolidated revenue grew 32.6% (2-year CAGR – value 22%, value 19.8%), while Ebitda/PAT declined 28.5%/28.1%, driven by 34% volume growth in the domestic decorative segment.
The management stated that the metros and T1/T2 towns fueled growth along with rural markets; international business grew 50%+.
Unprecedented inflation in input RM/PM (+20%) impacted gross margin, which fell 966bp to 33.7% despite better product mix. The management said it did some unique work on sourcing and formulation efficiencies, and took ~7.5% price hike in H1, the impact of which would be evident in Q3.
Yet, Ebitda margin cracked 1,090 bps to 12.7%.
Despite Covid restrictions, consumer upgrade to economy emulsions fueled volume uptick in rural markets. The management maintained positive outlook, supported by strong consumption, yet confirmed imminent price increases to offset inflation to maintain margins.
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