Asian Paints Ltd., a known name in the paints and coatings industry, has seen its stock decline 20% over the last six months, prompting a closer look at what’s driving the underperformance.
Asian Paints Ltd., a known name in the paints and coatings industry, has seen its stock decline 20% over the last six months, prompting a closer look at what’s driving the underperformance.
At the heart of the concerns are a host of issues, ranging from declining financial performance to macro and competitive headwinds. A combination of negative revenue and PAT growth, low single-digit volume growth, margin pressure, deteriorating cash conversion cycle, declining international profitability, and rising promoter pledge are weighing on the company’s performance. Additionally, FIIs have been steadily reducing their stake, adding to investor concerns.
Earnings Snapshot: Pressure Mounting
Performance in the current financial year so far has been underwhelming.
The company reported a 5% YoY decline in revenue and a 30% fall in PAT for the 9M FY25 period. This is in stark contrast to the growth in previous years:
Decorative and industrial paints together saw just 3% volume growth YoY in 9M FY25, a significant decline from previous years:
This comes against the backdrop of Asian Paints targeting double-digit volume growth at the beginning of FY25.
The slowdown in urban demand, rising competition from Birla Opus, downtrading by consumers, deceleration in government spending, and seasonality are all cited as major drags on volume and revenue growth.
The value growth numbers echo the volume challenges. The first nine months of fiscal 2025 saw a negative value growth of 4.8%, a significant decline from previous years;
Despite a 12% price hike in the first half of FY25, inflation was only 3.3%, highlighting that price increases haven’t kept pace with cost pressures. Margin trends reflect this strain:
9M FY25 margins stood at 17.9%. In the previous years it was the following;
International Business Weakening
International operations also struggled, with profits down 19% YoY in 9M FY25. This comes after a 7% rise in FY24 and a turnaround to profitability in FY23.
Cash Conversion Cycle Worsening
The cash conversion cycle has been on a deteriorating trend, increasing to 93 days in March 2024 from just 59 days in March 2021.
FIIs Pulling Out, Promoter Pledge Rising
Foreign Institutional Investors have reduced their holding consistently
Simultaneously, promoter pledging has increased:
Valuations – A Silver Lining?
Amid the challenges, valuations have dipped below both Covid-era levels and the five-year average PE of 57 times.
TTM PE: 43 times.
FY24 PE : 50 times.
FY23 PE : 64 times.
FY22 PE : 97 times.
FY21PE : 77 times.
The stock is currently down 13% over the past year, though still up 40% over the last five years. It trades 15% away from its 52-week low and is currently below its 200-day moving average.
Brokerages Turn Cautious
Brokerages have started revising their target prices downward:
BofA: Maintained 'neutral' rating, cut TP to Rs 2,355 from Rs 2,395.
Goldman Sachs: Maintained 'sell', cut TP to Rs 2,275 from Rs 2,375.
Jefferies: Retained 'underperform', cut TP to Rs 2,000 from Rs 2,080.
Out of 39 analysts tracking the stock, nine recommend a 'buy', 11 have a 'sell' rating, while 19 suggest 'hold', according to Bloomberg data. The months ahead will be critical for Asian Paints as it navigates a challenging environment and attempts to restore investor confidence.
The recent underperformance of Asian Paints has led to growing concerns among investors. With volume and value growth slowing, margins compressing, and competitive pressures intensifying, the company’s future trajectory will depend on how effectively it can address these structural headwinds.
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