Asian Paints Q1 Results Review: Analysts Cut Target Price As Rising Costs Hit Profit

Several brokerages lowered Asian Paints Ltd.'s target price and earnings estimates, citing increased competitive pressures and rising costs as significant concerns.

The paint maker's first-quarter profit fell, with revenues declining on account of a high base, price cuts and subdued demand. India's largest paintmaker saw a 24.6% year-on-year dip in consolidated net profit to Rs 1,187 crore in the quarter-ended June, according to an exchange filing. That compares with the Rs 1,407.3-crore consensus forecast of analysts tracked by Bloomberg.

Asian Paints Q1 Results Key Highlights (Consolidated, YoY)

• Revenue fell 2% to Rs 8,969 crore (Bloomberg estimate: Rs 9,318.4 crore).

• Operating profit declined 20% to Rs 1,694 crore (Bloomberg estimate: Rs 1,965.4 crore).

• Margin shrank to 18.9% from 23.1% (Bloomberg estimate: 21.1%).

• Net profit fell 24.6% to Rs 1,187 crore (Bloomberg estimate: Rs 1,407.3 crore)

Despite some optimism regarding demand recovery and strategic initiatives, the paint giant faces a challenging environment, reflected in the downward revisions of target prices and earnings estimates.

Here is what brokerages have to say on Asian Paint's first-quarter results.

Jefferies

• Retained 'underperform' on the stock with a target price of Rs 2,100 apiece, implying a downside of 29% from previous close.

• International revenue declined 2%.

• International profitability saw a sharp decline due to loss in Asia and the South Pacific.

• Infra demand is subdued due to elections.

• Cut earnings per share estimate for fiscal 2025-2027 by 1-7%.

• Valuations are around 50 times earnings-per-share, which is expensive.

Citi Research

• Reiterated 'sell' call on the stock and cut the target price to Rs 2,400 apiece from Rs 2,600 per share earlier, implying a downside of 19% to previous close.

• Expects around 8% gap in volume and value in the near term.

• The July 2024 price hike was only 1%, and a rural demand uptick can further hurt the product mix.

• Increased competitive intensity will keep margins under pressure.

• Sees revenue growth and Ebitda margins at 3% and 18.7%, respectively for fiscal 2025.

• Earnings per share may fall 13% YoY.

• Expects to see an impact of the Birla Opus launch in the industry.

Nomura

• Maintained a 'neutral' rating on the stock and reduced the target price to Rs 2,850 apiece from Rs 2,925 per share earlier, implying a downside of 4% from previous close.

• Murphy's law is playing out; fiscal 2025 will see weak earnings growth.

• First-quarter fiscal 2025 volumes growth of 7% year-on-year missed management guidance of double-digit growth.

• Cut earnings per share for fiscal 2025, 2026, and 2027 to 7.8%, 6.4%, and 5.7%, respectively.

• Low earnings growth due to the overhang of higher competition in the sector.

• Expects compound annual growth of 7% in earnings per share over fiscal 2024–2027.

• Downside risks: Lower than expected volumes, margins, and higher than expected competitive intensity.

Goldman Sachs

• Maintained 'neutral' rating on the stock.

• Target price reduced to Rs 2,750 apiece, implying a downside of 7% to previous close.

• Second consecutive quarter of revenue decline.

• Employee cost increased 23% after one-off cost reversal.

• Expects festive season to face intense competition.

JPMorgan

• Rated 'neutral' and lowered target price to Rs 2,800 apiece from Rs 2,870 apiece earlier, implying a downside of 6% from previous close.

• Company's success in premium segments will be crucial.

• Expects negative share price reaction.

• Intensive competition to threaten margins.

UBS

• Maintained 'buy' on the stock and revised target price to Rs 3,650 apiece from Rs 3,550 per share earlier, implying an upside of 23% from previous close.

• Demand impacted by heatwave and elections.

• Gross margin impacted due to raw material inflation and weak product mix.

• Lower than anticipated margins in fiscal 2025 due to higher staff cost.

On the NSE, Asian Paints' stock fell as much as 4.45% intraday on Monday, before paring loss to trade 2.01% lower at Rs 2,914.5 per share, compared to a 0.33% advance in the benchmark Nifty 50 as of 9:40 a.m.