Asian Paints slips 10% in 3-days post Q2 results; stock at 5-month low

With regards to the whistleblower's claim of related party transaction, Asian Paints has clarified the transactions were undertaken in compliance with law and there was no basis for the allegations

Share of Asian Paints dipped 4 per cent to Rs 2,855.60 on the BSE in Monday’s intra-day trade, thus falling 10 per cent in past three trading sessions post Q2 results. The company had reported 28.2 per cent year on year (YoY) decline in consolidated net profit at Rs 595.96 crore in July-September quarter (Q2FY22), due to higher operational cost. The company had posted a profit of Rs 830.37 crore in the year-ago quarter.

The stock hit a five-month low and a quoted at its lowest level since May 25, 2021. It was trading lower for the eight straight days, falling 14 per cent during the period.

Meanwhile, on the whistleblower's claim of related party transaction, Asian Paints has clarified the transactions were undertaken in compliance with law and there was no basis for the allegations made. CLICK HERE FOR CLARIFICATION

According to clarification, the consultancy charges paid to ex-employee was as per law and with necessary approvals taken from the audit company. Based on available information, we do not see it as a major concern for the company, ICICI Securities said in a note.

In Q2FY22, Asian Paints profit before depreciation, interest, tax and other income (PBDIT) margin declined to 12.73 per cent from 23.64 per cent in Q2FY21. Steep inflation seen in raw material prices, since the beginning of this calendar year, has been phenomenal and has impacted gross margins across all businesses in the quarter, the company said. The management said the company have taken a series of price increases and would look at further price increase to mitigate the impact of this persistently high inflation and are confident that the company should be able to turn this around strongly in the coming quarter.

“Asian Paints’ volume (ergo market share) now, value later strategy seems in sync with the evolving competitive landscape (read Grasim’s entry). However, margin pressures, given steep raw material inflation and in commensurate price hikes, corner us into toning down our FY23/24 EPS estimates (by 7 per cent each),” analysts at HDFC Securities said and maintain ‘sell’ rating on the stock with target price of Rs 2,600 per share.

“With input inflation getting back to the peak, FY21 margins appear challenging. We raise sales estimates by 6 per cent, factoring in the strong growth momentum, but reduce margin assumptions. As a result, we cut earnings estimates by 23%/13%/7% for FY22/23/24. Retain Hold with a revised target price of Rs 2,800 per share,” said analysts at Emkay Global Financial Services.