Asian Paints - Q1FY21 First Cut - ICICI Securities

(CMP: Rs. 1712; Cap: Rs. 1,64,502 crore)

Asian Paints' performance was better than our estimates in all fronts supported by strong business recovery in the month of June'20 (Decorative segment volume grew by double digit in June'20). While April'20 was a complete washout month, the decorative segment has witnessed improving business condition over the following two months of Q1FY21. The other business segments, industrial coatings business and Home Improvement category also witnessed a slow recovery in the month of June'20. Profitability was largely driven by benign raw material prices and various cost control initiatives by the company during the period of lower sales.

Q1FY21 Earnings Summary

- Asian Paints' consolidated revenue declined by ~43% YoY to ~Rs. 2923 crore due to loss of sales for almost 40 days lockdown. However, it was much ahead of our estimate of Rs. 2213 crore. Post restrictions from lockdown, the business activities has witnessed good recovery in the next two months of the Q1FY21. The decorative segment double digit volume growth during the month of June'20

- As expected, gross margin increased by ~110 bps YoY led by benign raw material prices. However, EBITDA margin was down by ~611 bps YoY to 16.6% (Vs I-direct estimate: 16%) led by lower operating leverage

- The reported PAT was ahead of our expectation at Rs. 220 crore (Vs I-direct estimate: ~ Rs. 163 crore) led by better than expected demand recover post opening up of the lockdown

We believe Asian paints has recorded better than expected performance during Q1FY21 given the challenging demand scenario with low discretionary spends. The double digit volume growth in the month of June'20 could be on account of pent up demand in the North and Eastern regions (as per our dealer check). We believe paint being highly discretionary in nature would see gradual recovery in demand post ease in lockdowns and supportive festive demand (as ~90% of dealers are operational). Asian Paints, with its robust dealer network (~60,000 +) and strong supply chain is well placed among competitors to recover lost sales in coming future.

Shares of ASIAN PAINTS LTD. was last trading in BSE at Rs.1710.95 as compared to the previous close of Rs. 1727.4. The total number of shares traded during the day was 92677 in over 6668 trades.

The stock hit an intraday high of Rs. 1727 and intraday low of 1683. The net turnover during the day was Rs. 157928359.

Source : Equity Bulls

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