Asian Paints Stock Plunges 9.5% to 3-Year Low as Q2 Earnings Disappoint, Analysts Lower Target Prices

Mumbai, November 11:

Asian Paints Stock, India’s largest paint and decor company, fell sharply by 9.5% to ₹2,506 on Monday, hitting a three-year low. The drop came after the company reported disappointing Q2 results for the fiscal year, missing analysts’ expectations across the board. Amid weak consumer demand, inflationary pressures, and ongoing market challenges, analysts have downgraded the target prices for Asian Paints, signaling potential headwinds for the stock in the near term.

Q2 Earnings Overview: Revenue Decline and Lower Profit Margins

Asian Paints posted a 43.71% drop in consolidated net profit to ₹693.66 crore for the September quarter, with revenue from operations down by 5.3% to ₹8,027.54 crore, compared to ₹8,478.57 crore in the same period last year. The decorative business segment in India, the company’s core market, experienced a 0.5% volume decline, while revenue from this segment fell 6.7% due to weaker consumer demand, extended rains, and flooding in certain areas.

The company’s EBITDA stood at ₹1,240 crore, down from ₹1,716 crore in Q2 FY24, resulting in a 500 basis points year-on-year decline in margins, which settled at 15%. These reduced margins were attributed to soft demand conditions, adverse product mix shifts, and inflation in material costs.

Amit Syngle, Managing Director & CEO of Asian Paints, expressed optimism about future performance, citing expected softening in material prices and recent price adjustments. “We anticipate a margin recovery in the upcoming quarters,” he stated.

Analysts React: Target Prices Adjusted Downward

Following Asian Paints’ weak Q2 performance, several brokerage firms have revised their target prices for the stock. Here’s a summary of notable changes:

• Nomura: Lowered the target price to ₹2,500 with a ‘Neutral’ rating, citing volume declines and underperformance compared to competitors, whose volumes grew by 3-4%.
• Morgan Stanley: Retained its ‘Underweight’ rating, reducing the target price to ₹2,522, highlighting weaker-than-expected revenue and margin performance.
• Jefferies: Maintained an ‘Underperform’ rating, setting a target price of ₹2,100, with concerns over a 31% YoY decline in pre-tax earnings and a more than 500 basis points drop in EBITDA margins.
• JPMorgan: Downgraded the stock to ‘Underweight’ and cut its target price to ₹2,400 from ₹2,800, citing significant operational underperformance.
• CLSA: Continued with an ‘Underperform’ rating, reducing the target price to ₹2,290, pointing to weaker consumer sentiment and slower sales growth compared to competitors.

Asian Paints Declares Interim Dividend Despite Challenges

Despite the challenges, Asian Paints announced an interim dividend of ₹4.25 per equity share for the fiscal year ending March 31, 2025. The dividend reflects the company’s commitment to rewarding shareholders, even as it faces short-term operational hurdles.

Future Outlook for Asian Paints Stock

Market analysts expect some improvement in margins in upcoming quarters as material costs stabilize and recent price increases take effect. However, the company’s recovery will largely depend on the broader economic environment, demand revival, and consumer sentiment. With multiple brokerages advising caution, investors may want to closely monitor further updates on material costs and demand trends to gauge the stock’s potential trajectory.