Asian Paints Faces Challenges Despite Strong Profit Growth

Asian Paints Faces Challenges Despite Strong Profit Growth

VoM News Desk | October 27, 2023 | 11:21 AM IST | Breaking News | Follow on Google News

Asian Paints Faces Challenges Despite Strong Profit Growth

Asian Paints Faces Challenges Despite Strong Profit Growth

Asian Paints’ shares continue to face downward pressure, dropping about 1% in early trading on BSE following its Q2FY24 results, which revealed flat revenue growth despite a significant 54% YoY increase in consolidated net profit. The previous day had seen a substantial 3.36% drop in the stock’s value after the Q2 earnings were announced.

Mixed Q2 Results

In this latest financial report, Asian Paints reported a consolidated net profit of ₹1,205.4 crore for the September quarter, demonstrating a robust 54% growth compared to ₹782.7 crore in the previous year. However, revenue growth remained almost stagnant, with only a marginal 0.3% increase, reaching ₹8,478.57 crore. Several factors contributed to this outcome, including sluggish demand, a delayed festive season, and erratic monsoon rains.

Stock Performance and Highlights

The company’s shares have displayed underperformance in the last year, with a decline of approximately 3%, in contrast to the benchmark Sensex, which has gained roughly 6% during the same period. Asian Paints’ share price reached its 52-week high of ₹3,566.90 on July 24, 2023, while it hit a low of ₹2,686.15 on January 27, 2023. As of the latest trading price, the stock remains down by approximately 17% from its 52-week high.

Brokerage Firms’ Views

Top brokerage firms have diverse perspectives on Asian Paints following the release of its Q2 results:

Nuvama Wealth Management maintained a “buy” recommendation on the stock but revised the target price down to ₹3,505 from the previous ₹4,045. They have slightly reduced earnings per share (EPS) estimates for FY25 and FY26 by 5.5% and 5.6%, respectively, as well as adjusted the price-to-earnings multiple from 60 times to 55 times. Nuvama sees geopolitical issues and rising raw material prices as potential risks, while the recovery of the rural market remains uncertain.

Motilal Oswal Financial Services holds a “neutral” stance on the stock with a target price of ₹3,100. The firm noted a 3.1% decrease in EPS forecasts for FY24 and a 0.6% decline for FY25 due to changes in their model. The impact of erratic rainfall on demand was highlighted by Asian Paints’ management, and the increase in input costs could negatively affect margin gains in H2FY24. Motilal Oswal emphasized that the paints segment may not command the higher valuations seen in recent years, as re-rating has been a significant driver of Asian Paints’ stock appreciation.

Nirmal Bang maintains an “accumulate” recommendation on the stock with a target price of ₹3,290. While they described Asian Paints’ Q2FY24 results as weaker than expected in terms of sales, EBITDA, and PAT, they believed the company could exceed its EBITDA margin guidance due to recent inflation in crude-related costs. Still, they emphasized that competitive intensity towards the end of FY24 could put FY25 margins at risk, and the stock’s rich valuations, at about 48 times FY25E EPS, led them to maintain the “accumulate” rating.

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