Asian Paints stares at weak FY26 on margin strain, market share loss

Given the multiple headwinds facing the sector, the stock has shed about 15 per cent over the past year and is down 25 per cent over the past three years

The prospects for an improvement in its market share or margins appear dim in 2025–26 (FY26) for the country’s largest paint maker, Asian Paints. The company’s January–March quarter (Q4) numbers for 2024–25 (FY25) were underwhelming, and the Street is not too optimistic about volume growth or profitability improvement due to muted demand, increased competition, and a lack of pricing power.

 

Given the multiple headwinds facing the sector, the stock has shed about 15 per cent over the past year and is down 23 per cent over the past three years.READ MORE

 

The decorative paint market leader reported a 5 per cent year-on-year (Y-o-Y) drop in standalone revenue and a 4 per cent dip in consolidated revenue, both lower than estimates. This marked the fifth consecutive quarter of revenue decline for the paint and décor major.

 

The company’s revenue performance was impacted by weak demand conditions, compounded by downtrading and increased competitive intensity. Volume growth in the domestic market was limited to 1.8 per cent Y-o-Y due to weakness in urban areas, challenging demand conditions, and a competitive environment. The Q4 weakness is expected to persist in the near term. 

 

Analysts at Kotak Research, led by Jaykumar Doshi, point out that Asian Paints’ domestic decorative business saw unprecedented levels of demand weakness and heightened competitive intensity in FY25, leading to historically low volume growth at 2.5 per cent and value growth of minus 5.7 per cent Y-o-Y — the weakest in two decades — along with a market-share loss. The near-term outlook remains bleak, with no major reversal in demand trends expected, says the brokerage.

 

Systematix Research highlights that industry demand has been impacted by consumption deferral, as consumers prioritised essential purchases to balance budgets amid elevated retail and food inflation. However, while near-term demand remains challenged, analysts Abhishek Mathur and Rajat Parab of the brokerage believe Asian Paints could benefit from a recovery from the second quarter and the second half of FY26 on a weak base, with a reversal of deferred demand as inflation lets up.

 

The operating performance, too, was disappointing, as profit dropped 15 per cent. Margins trended below the target band of 18–20 per cent and came in at 17.2 per cent. The margin was down 220 basis points Y-o-Y due to higher selling expenses, competitive pressures, and downtrading. 

 

Analysts at ICICI Securities, led by Manoj Menon, point out that there are downside risks to the 18–20 per cent margin guidance, as competitive intensity is likely to materially increase in FY26. The correction in crude oil prices, however, may provide some margin tailwinds.

 

Despite the stock’s underperformance over the past year on the back of sharp earnings cuts, brokerages remain cautious about a recovery. Analysts at Motilal Oswal Research, led by Naveen Trivedi, have a ‘neutral’ rating, citing uncertainty around demand recovery in the near term and concerns about performance going forward. While moderation in raw material prices is a positive for the business, growth recovery will be critical for a rebound in stock performance, says the brokerage.

 

While the company has given single-digit revenue growth guidance and an 18–20 per cent margin target, most brokerages believe it is likely to lose market share given the faster growth rates of new entrants such as Grasim and share gains by Berger Paints and AkzoNobel. Further, the company may need to increase its selling and marketing expenses to protect its market share in FY26, which would weigh on margins.