Asian Paints down for 4th straight day; plunges 11% in 2 days on weak Q2

Analyst at Elara Capital said it anticipate further market share erosion for Asian Paints and believe investors should not catch a falling knife as the industry is going through structural change.

Shares of Asian Paints continued to trade lower for the fourth straight day, hitting over a three-year low of Rs 2,476, and down 3 per cent on the BSE in Tuesday’s intra-day trade. In the last two days, the stock of paint company has plunged 11 per cent. Meanwhile, in last four trading sessions, the stock has slipped 15 per cent.   The stock is trading at its lowest level since May 2021, in the last two months, it has tanked 27 per cent. The recent downturn in the stock price came after the company reported a weak set of numbers for the second quarter ended September 2024 (Q2FY25).   The company's earnings before interest, tax, depreciation, and amortisation (Ebitda) margin declined to 15.5 per cent from 20.3 per cent in the corresponding period of the previous year. 

 

 

In Q2FY25, the company’s consolidated net sales decreased by 5.3 per cent year-on-year (Y-o-Y) to Rs 8,003.0 crore as its decorative business in India registered volume decline of 0.5 per cent. The weak consumer sentiments coupled with persistent rains through the quarter and floods in some parts of the country also impacted consumption.

 

The paint maker's revenue was affected by price cuts taken last year, a shift in mix and increased rebates. The impact of price increases implemented during Q2 is expected to flow through in the second half of the year, the company said.

 

Asian Paints' Ebitda was down 27.8 per cent Y-o-Y to Rs 1,239.5 crore from Rs 1,716.2 crore earlier, while profit after tax declined by 42.4 per cent YoY to Rs 694.60 crore during the quarter.

 

Analyst at Elara Capital reiterated their 'Sell' rating on Asian Paints with a lower target price of Rs 2,240 (from Rs 2,640). The brokerage said that it would look for signs of reduced competitive intensity to change its view.

 

Asian Paints in Q2FY25 conference call did not provide any comfort as regards to recovery in sales growth in the near term. The management did acknowledge the impact of competition, which got aggravated due to slower industry demand. Contrary to competitors, Asian Paints remained cautious on growth. The brokerage firm said it anticipate further market share erosion and believe investors should not catch a falling knife as the industry is going through structural change.

 

Although an immediate recovery in Q3 is unlikely, there is optimism due to a promising wedding season ahead. Despite expectations of a soft Q3, the management anticipates stronger growth in Q4 and targets single-digit volume growth for FY25.

 

Decorative paint demand remained weak in Q2FY25 (for both Asian Paints and the industry), with a weaker mix and higher rebating intensity impacting margins. The gross and Ebitda margins contracted 260bp and 480bp Y-o-Y to 40.8 per cent and 15.4 per cent, respectively, according to analysts at InCred Equities.

 

During the quarter, Asian Paints witnessed raw material inflation of 1.5 per cent, for which it hiked product prices by 1.2 per cent, however demand conditions are expected to remain challenging, which, coupled with heightened competitive intensity, should limit the potential for upside in margins for paint players in the near term, the brokerage firm said with reduce rating on the stock and target price of Rs 2,340 per share.