Asian Paints continues its fourth session loss; it reaches a 52-week low
Extending its losses for the second day in a row, shares of the country’s leading paint manufacturer fell to a 52-week low. In the two days since the company’s earnings release on Saturday, the stock has been losing momentum. Although in the last four seasons, it has lost about 15 percent considering today’s low price.
At the time of this copy, the stock was trading near its 52-week low of Rs 2,471.8, down 2.8 percent.
The sharp drop in the company’s stock price comes after its weaker-than-expected September earnings and demand cuts.
Brokerages downgrade Asian Paints stock
InCred Equities in its report has advised a ‘reduce’ call on the stock with a target of Rs 2,340 per share, implying a downside of more than 5 percent from today’s lows. The brokerage maintains that demand for decorative paints remains weak in 2QFY25 (both Asian Paints & the industry), with a weak mix and higher discount affecting margins (gross/EBITDA margins contracted 260bp/480bp yoy to 40.8 per cent/15.4 per cent, respectively). During the quarter, Asian Paints saw a decrease in raw material inflation by 1.5 percent, while it increased product prices by 1.2 percent, however demand conditions are expected to remain challenging, which, coupled with high competitive pressure, should limit the country’s upside potential. margins of paint players in the near term.
We cut our FY25F/26F EPS by 16%/12%, respectively, and maintain our REDUCE rating on the stock with a new target price of Rs2,340 (45x Sep 2027F EPS) from Rs2,620 previously, it added.
The high risk of the stock as emphasized by the brokerage is stronger than the expected sales growth.
Jefferies, meanwhile, maintained a more bearish view on the stock with a target of Rs 2,100, implying a downside of more than 24 percent. The company ran into significant losses in 2Q, with line-by-line misses across all P&L heads. A smaller volume decline, a decline in Ebitda margin of more than 500bp resulted in a 31 percent YoY decline in pre-earnings, it added.
Management blamed weak consumer sentiment and seasonality but presented a positive outlook for H2.
Outlook remains mixed
Further, the company’s outlook remains positive amid falling input costs and a better outlook for demand. Also, the company’s management maintained its double-digit volume growth outlook for FY25F. Margin is expected to remain under pressure due to competitive pressure
Asian Paints Q2 results
Asian Paints posted a 6.5 percent yoy sales decline in its decorative business in 2QFY25, with a 0.5 percent volume decline, reflecting a 6 percent price cut (compared to a 9.9 percent reduction in 1QFY25). Weak consumer sentiment impacted 2Q demand, which was also affected by extended rains, coupled with price cuts taken from the base and a weak mix, which led to a decline in sales. Urban markets remained under pressure while rural markets benefited from improvements in distribution access and variety. The pace of project business growth is slowing down. Industrial business went relatively well. International business decreased by 1 percent yoy (+8.7% on a constant currency basis) influenced by weak performance in Africa and the decline in Bangladesh, which led to a 1 percent yoy decline in Asia. Forex losses in Ethiopia, along with lower demand in Asia, impacted profitability.
