Asian Paints topline delivery (43.5% YoY) exceeded expectations (HSIE: 35%). Growth was all-round. Decorative business clocked 48/46% volume/value growth underpinned by (1) strong pent-up demand in paints and adjacencies (waterproofing) and 2) pick-up in metros and Tier 1/2 cities. Industrial subsidiaries too delivered a strong recovery. GM crack (down 266bp YoY at 43.2%; in-line) was a foregone conclusion, given runaway RM inflation. Strong cost control cushioned EBITDAM (+128bp at 19.8%; in-line).

While the double whammy of the second wave and RM inflation is expected to be a drag in 1Q, demand normalisation trend over the year is unlikely to change meaningfully for a category like paints. Hence, we marginally cut our FY22/23 revenue/EPS estimates (-2% each and -2/1% resp).

4QFY21 highlights: Revenue grew 43.5% YoY to Rs. 66.5bn (HSIE: Rs. 62.4bn) as all business vectors fired. Decorative volume/value grew 48/46% YoY (13/8% for FY21) underpinned by (1) strong pent-up demand in paints and adjacencies (waterproofing) and (2) pick-up in metros and Tier 1/2 cities. Industrial subsidiaries (PPG-AP and AP-PPG) too staged a strong recovery (+39/63% resp). Strong Auto sales momentum continued. Within non-auto, both industrial liquid and powder paints recovered well in 4Q. GM crack (down 266bp YoY at 43.2%; in-line) was a foregone conclusion, given runaway RM inflation. Strong cost control cushioned EBITDAM (+128bp at 19.8%; in-line). International revenue grew 21.8/6.5% YoY to Rs. 7.3/25bn in 4Q/FY21. Management commenced its round of price hikes (first round: +2.5% in Apr-21) to partly cushion expected impact on GM from RM inflation.

Outlook: APNT's wide distribution arbitrage has helped it recoup most of its annual demand in FY21. We expect a similar demand normalisation trajectory in FY22. Margin pressures remain, given the recent RM spikes (will partly be cushioned by price hikes). We marginally cut our FY22/23 revenue/EPS estimates (-2% each and -2/1% resp).