Morgan Stanley cited weather-related impacts and demand challenges, while Jefferies expressed concerns about Asian Paints’ broad-based underperformance and competitive pressures.
Asian Paints Ltd
Asian Paints shares fell over 9 percent on November 11 after several brokerages expressed disappointment over the company’s underwhelming Q2FY25 performance amid a challenging demand environment and increased competition.
At 9:20 AM, the stock was down over 7 percent at Rs 2,565. Year-to-date, it has lost nearly 25 percent, underperforming the Nifty 50, which has risen 10 percent in the same period.
JPMorgan downgraded Asian Paints to ‘Underweight’, cutting its target price to Rs 2,400 from Rs 2,800 due to the company’s significant operating miss. The company’s profit-before-depreciation, interest, and tax (PBDIT) margin dropped to 15.5 percent in Q2FY25 from 20.3 percent the previous year. CEO Amit Syngle said, “Operating margins were impacted by the price reductions taken last year, higher material prices and increased sales expenses.”
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CLSA maintained an ‘Underperform’ rating with a target of Rs 2,290, citing weaker consumer sentiment that led to sales growth lagging competitors.
The company’s Q2FY25 revenue from operations dropped 5.3 percent year-on-year to Rs 8,003 crore, missing the Moneycontrol poll estimate of Rs 8,528 crore. Consolidated net profit fell 42.4 percent to Rs 694.64 crore, lower than the poll’s Rs 1,205 crore forecast.
Nomura lowered the target price of the stock to Rs 2,500 from Rs 2,850 and gave it a ‘Neutral’ rating. “Other players consciously bettered their mix by selling less of low-value products (putty, distemper, primer etc), while Asian Paints continued to see lower mix. While we believe volumes can improve in 2H due to postponement of demand and improvement in rural, we believe overall sales and EBITDA will still look anaemic/flattish,” the brokerage said.
Morgan Stanley and Jefferies also held cautious views, with ‘Underweight’ and ‘Underperform’ ratings respectively. Morgan Stanley cited weather-related impacts and demand challenges, while Jefferies expressed concerns about Asian Paints’ broad-based underperformance and competitive pressures.
Asian Paints share price:
The stock declined as much as 9.3% to hit a low of ₹2,511.65 on the NSE in the opening deals.
The company on Saturday reported a 43.71% decline in consolidated net profit to ₹693.66 crore for the September quarter. It had logged a net profit of ₹1,232.39 crore during the July-September period a year ago.
The company’s revenue from operations was down 5.3% to ₹8,027.54 crore in the September quarter. In the year-ago period, it stood at ₹8,478.57 crore.
Commenting on the Q2 performance, Amit Syngle, Managing Director & CEO of Asian Paints, said, “The paint industry faced a subdued demand environment during the quarter. Domestic decorative coatings segment volumes declined marginally, while overall domestic coatings revenue declined by 5.5% for the quarter impacted by muted consumer sentiments and extended rains and floods in some parts of the country. Operating margins were impacted by the price reductions taken last year, higher material prices, and increased sales expenses. While we took price increases during the quarter, the full impact of the same should flow through only in the second half of the year.”
On the 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,” the CEO added.
The CEO further said that while demand conditions remain challenging, the company continues to direct its efforts toward leveraging its brand strength, robust supply chain, and distribution network to pursue growth.
Global brokerage firm JP Morgan has downgraded Asian Paints after its September quarter results. The brokerage said that the company’s operating performance was significantly weaker than expectations.
It also noted that Asian Paints is lagging behind its peers, with the differential expanding further in Q2.
It has lowered the stock’s FY25-27 EPS estimates by 10-12%.
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