Asian Paints - Volume growth accelerates; Margin Guidance Maintained | Initiating Coverage

Asian Paints (APNT) reported healthy growth for the 2nd consecutive quarter with conso revenue grew by 17.9% led by robust growth in decorative, Industrial and international business. Decorative business continued to post healthy volume growth of 9.0% (3.9% in the base). Industrial coating sustained mid-teen growth (16%+) trajectory. IB reported revenue growth of 27.2% in INR terms led by broad based growth across key markets. Going ahead, the company expects volume growth to be ~8-10%. Despite volatile macro environment, the company witnessed healthy GM and EBITDAM expansion to 43.6% and 20.6%, surpassing the EBITDAM guidance of 18-20% led by price hikes, better mix, formulation and sourcing efficiencies and disciplined cost management. Going ahead, the company remains confident of maintaining EBITDA margins in the range of 18-20%. As the market leader, Asian Paints continues to outperform its peers, driven by sustained brand investments, superior execution, effective cost management and a strong premium portfolio. Despite near-term inflationary pressures and intense competition, improving decorative growth, price hikes, a narrowing volume-value gap, premiumization and robust performance in Industrial Coatings and IB reinforce our confidence in the company's medium-term earnings growth trajectory. Accordingly, we initiate coverage on Asian Paints with a 'Buy' rating. Valuing the stock at 52x FY28E EPS, we arrive at a target price of Rs 3,165.

Q1FY27 Performance - Result ahead of consensus estimates:

Consol grew by 17.9% YoY to Rs 105.4bn. Decorative Business (India) registered volume growth of 9.0% with revenue growth of 16.7%. GM expanded by 90bps YoY to 43.6%. A 90/40/110bps increase in RM cost/employee expenses/other expenses led to EBITDA margin expansion of 240bps YoY to 20.6%. EBITDA grew by 33.5% YoY to Rs 21.7bn. APAT grew by 40.0% YoY to Rs 15.4bn.

Revenue & Margin Performance and Guidance:

The management expects volume growth to sustain ~8-10% range going forward, with underlying demand trends remaining healthy. Further, the company launched multiple products to address the increasing competition especially in the multi-year warranty space. In addition, the management reiterated its confidence in maintaining the long-term EBITDA margin guidance of 18-20%. Margin protection strategy is being driven through calibrated price hikes, tighter cost controls, disciplined spending, better product mix, premiumization and operational efficiency initiatives. APNT also highlighted backward integration as a key structural lever that would gradually support margins over the course of the year. However, high-cost inventory is expected to pressurize margin in the near term.

Outlook:

We expect Asian Paints to deliver healthy growth driven by sustained volume growth, premiumization, distribution expansion and continued strength in the industrial and international businesses. While input cost inflation, high-cost inventory and intense competitive intensity are likely to keep margins under pressure in the near term, calibrated price hikes, cost optimization initiatives and backward integration are expected to support profitability. We expect the company to achieve its long-term EBITDA margin guidance of 18–20%, with demand supported by a healthy festive season and stable rural consumption.

Valuation:

We forecast a Revenue/EBITDA/PAT CAGR of 10.0%/10.2%/9.2% over FY26–FY28E. We remain positive on APNT, supported by its market leadership, strong brand, premiumization strategy, and extensive distribution network. Accordingly, we maintain a ‘BUY’ rating with a target price of Rs 3,165, based on 52x FY28E EPS.

Company website: https://www.asianpaints.com/

*CMP is as per report published date

Click to download the full Asian Paints Ltd Q1FY27 Company Update

Analyst:

• Sachin Bobade - HOR, Institutional Equities (NISM-201700098683)
• Akshay Patel - Senior Research Associate, Institutional Equities (NISM-202100071038)

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Frequently Asked Questions (FAQs) – Asian Paints Q1FY27 Company Update

1. What drove Asian Paints' Q1FY27 growth?

Growth was driven by strong decorative paint volumes, healthy industrial coatings performance, robust international business growth, premiumization and effective pricing strategies.

2. How did Asian Paints improve margins despite inflation?

Margin expansion was supported by calibrated price increases, premium product mix, sourcing efficiencies, disciplined cost management, operational improvements and backward integration initiatives.

3. What are the company's key long-term growth drivers?

Long-term growth is expected from decorative paints, premium products, industrial coatings, international expansion, wider distribution, innovation and sustained brand investments.

4. What risks should investors monitor?

Key risks include raw material inflation, competitive pricing, high-cost inventory, slower demand recovery, economic uncertainty and fluctuations in input costs.

5. Why does the institutional research report have a BUY rating?

The positive view is supported by Asian Paints' market leadership, consistent volume growth, premiumization strategy, operational efficiency, strong brand equity and healthy long-term earnings visibility despite near-term industry challenges.

6. Is this content investment advice?

No. This article summarizes an institutional equity research report for educational and informational purposes only. It should not be considered personalized investment advice, an offer or solicitation to buy or sell securities. Investors should evaluate their financial objectives, risk profile and consult a SEBI-registered investment adviser before making investment decisions.

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