Asian Paints Q4 Results Review - Volume Growth Holding Up; Brand Spend To Aid Market Share: Systematix

Systematix Research Report

Asian Paints Ltd. delivered weaker-than-expected Q4 FY24 results. Volume growth was sturdy at 10% YoY, inline with our estimate. However, consolidated revenue decline of c.1% YoY was below our estimates, impacted by-

1. price cuts of ~3.7% and

2. adverse product mix due to downtrading in premium segment.

Gross margin expanded strongly by ~120 basis points YoY on the back of benign raw material costs and sourcing/formulation efficiencies. However, operating margin decline of ~180 bps YoY was significantly below our estimate, impacted mainly by a sharp step-up in marketing spend.

Management highlighted a rural demand resurgence witnessed in April (rural growth was weak in Q4 FY24). With the projects/institutional business growing well, Asian Paints also expects government business to pick up post-election.

While the company sees a negative product mix of 5-6% persisting going forward, it expects benign input costs to continue to benefit gross margins (FY24 expansion of 475 bps YoY).

Management indicated that it will continue to ramp up A&P/brand-building spends over the next few quarters, prioritizing marketing spend over price cuts. However, Asian Paints reiterated its operating profit margin guidance of 18-20% (FY24 OPM expansion of 320 bps YoY), and expects A&P cost at 3-5% of sales.

We maintain Buy rating on Asian Paints with a lower target price of Rs 3,280 (21% upside) with 5% earnings per share compound annual growth rate over FY24E-FY26E.

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