Asian Paints shares slide 9.5% to over 3-year low as Q2 results disappoint, analysts cut target price

Stock Market Today: Shares of Asian Paints, the country's leading paint and decor company, fell by 9.5% to ₹2,506 per share during intraday trading on Monday, November 11, marking its lowest level since April 2021. This drop followed the company’s disappointing results for the September quarter (Q2), which missed analysts' expectations on all parameters.

The weak performance during the reporting quarter was primarily attributed to soft demand conditions, material price inflation, and a decline in the decorative and coatings business in the domestic market, which impacted the company’s profitability. As a result of these challenges, analysts have revised their target prices for the stock downward.

Japanese brokerage firm Nomura lowered its target price for Asian Paints to ₹2,500 per share while maintaining its 'Neutral' rating. It highlighted that the company's Q2 performance fell short of estimates, with volumes declining by 0.5% year-on-year (YoY), underperforming peers who grew by around 3-4%. Sales and EBITDA declined sharply by 5% and 28% YoY, respectively.

Operating profit margins (OPM) were significantly impacted by a drop in gross profit margins (GPM) and higher staff costs, leading to a narrowing of OPM compared to peers.

Morgan Stanley also retained its 'underweight' rating on the stock, reducing its target price to ₹2,522 per share. The brokerage cited that Q2 revenue and margins missed estimates due to subdued demand, extended rains, and floods.

With a volume growth of -0.5%, Asian Paints' performance was weaker than its peers, it said. Jefferies also maintained its 'Underperform' rating on the stock, with a target price of ₹2,100. The brokerage noted a significant miss in the second quarter, with line-by-line misses across the profit and loss (P&L) heads.

A mild volume decline, coupled with a more than 500 basis point EBITDA margin drop, led to a 31% YoY decline in pre-tax earnings. JPMorgan downgraded Asian Paints to 'Underweight' and slashed its target price to ₹2,400, down from ₹2,800, following the company's significant operating miss.

Meanwhile, CLSA maintained its 'Underperform' rating and reduced the target price to ₹2,290, attributing the sales growth lag to weaker consumer sentiment compared to competitors.

Q2 earnings snapshot

The company reported a 43.71% decline in consolidated net profit, which fell to ₹693.66 crore for the September quarter. Revenue from operations dropped by 5.3% to ₹8,027.54 crore, primarily impacted by price cuts implemented last year. In the same period last year, revenue stood at ₹8,478.57 crore.

The decorative business (India) saw a 0.5% volume decline, with revenue dropping by 6.7%. Weak consumer sentiment, coupled with persistent rains throughout the quarter and floods in some regions, adversely affected consumption in Q2. 

On the operating front, EBITDA came in at ₹1,240 crore, a significant decrease from ₹1,716 crore in Q2 FY24. Additionally, margins tumbled by 500 basis points YoY, standing at 15%.

"Margin front, soft demand conditions, product mix, and material price inflation affected margins in Q2. We expect margins to recover in the coming quarters on the back of anticipated softening in material prices coupled with price increases implemented in the last few months," said Amit Syngle, Managing Director & CEO of Asian Paints Limited.

Meanwhile, in a separate filing, Asian Paints said its board had approved an interim dividend of ₹4.25 per equity share of the face value of Re 1 each for the financial year ending March 31, 2025.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.