Brokerages view on Asian Paints: Paint industry behemoth Asian Paints reported a weak set of numbers in the June quarter of financial year 2025 (Q1FY25). Asian Paints missed Street estimates due to adverse conditions such as a heatwave and elections impacting demand, analysts noted.
According to reports, most of the international brokerages have slashed their target prices for Asian Paints stock following the weak performance in Q1FY25.
Asian Paints: New target prices
While reiterating its ‘Buy’ rating, global brokerage UBS has adjusted its target price downwards to Rs 3,650 per share. Goldman Sachs, too, has maintained its ‘Neutral’ stance, but has slashed its target price to Rs 2,750 per share.
JP Morgan has also held a ‘Neutral’ outlook on the company, lowering its target price to Rs 2,800 per share.
Meanwhile, Citi has maintained its ‘Sell’ recommendation, reducing the target price to Rs 2,400 per share. Jefferies, too, remained cautious with an ‘Underperform’ rating and a lower target price of Rs 2,100 per share.
Nomura analysts, too, have revised down their EPS forecasts for FY25, FY26, and FY27 by 7.8 per cent, 6.4 per cent, and 5.7 per cent respectively. Given the sluggish earnings growth and increased competition from new entrants like Birla Opus, the analysts have cut the target price to Rs 2,850 (from Rs 2,925). The rating, however, remains ‘Neutral’.
On the bourses, Asian Paints share price dropped as much as 4.24 per cent to hit an intraday low of Rs 2,848.15 per share on Thursday. The stock was also the top loser on both BSE and NSE at 9:18 AM.
What should investors do with Asian Paints stock?
Analysts at ICICI Securities believe Asian Paints is facing multiple headwinds such as increase in competitive pressures; higher commodity prices; and slowdown in industry growth rates.
“As Asian Paints is the market leader, the onus to drive industry growth is on Asian Paints. While it may increase distribution, step up investments in additional feet-on-street and increase ad-spend, we believe these initiatives will show results (if any) only after a gap of 12-18 months and may impact near-term earnings,” the brokerage said.
It has maintained a ‘Reduce’ rating and a target price of Rs 2,550 (earlier Rs 2,600) as it believes the stock’s valuations (P/E of 58.5x FY26E) are stretched.
With limited scope for margin expansion and likely market share decline, we believe there are multiple triggers for contraction of valuation multiples, it added.
Long-term investors, however, may use the dip in Asia Paints stock as a buying opportunity, said those at Nuvama Institutional Equities
Their confidence comes from potential recovery in rural consumption and anticipated price hikes ahead. “We shall watch out for rural consumption recovery and further price hikes. We retain ‘Buy’ with a target price of Rs 3,450,” it added.
Analysts at the brokerage reckon double-digit volume growth shall return in the remainder of FY25.
Asian Paints Q1FY25 Financial performance
Asian Paints reported a 2.3 per cent year-on-year decline in revenue and a considerable 20.2 per cent drop in earnings before interest, taxes, depreciation and amortisation (Ebitda), falling short of consensus estimates.
However, the company’s domestic decorative business saw a 7 per cent increase in volumes, but a 3 per cent decline in value due to price reductions and unfavourable product mix. Meanwhile, the industrial segment recorded a 5.8 per cent growth year-on-year.
The company’s gross margin contracted slightly to 42.5 per cent, while Ebitda margin dipped to 18.9 per cent primarily due to a high base effect and lack of operating leverage. Operating costs such as staff and other expenses rose notably compared to the previous year.
Q1FY25 Conference Call Highlights
Asian Paints showed confidence in achieving double-digit volume growth for Q2FY25 amid favourable demand dynamics.
However, the company acknowledged challenges ahead, particularly concerning inflationary pressures expected to range between 1 per cent to 1.5 per cent in Q2FY25. To address these challenges, Asian Paints plans to implement additional price hikes during the same period.
In terms of performance, the economy segment, particularly highlighted by NeoBharat, exhibited strong uptake.
First Published: Jul 18 2024 | 9:52 AM IST
