Asian Paints Share Price Falls After Q3 Results, Weak Urban Demand Outlook

Asian Paints Ltd.'s share price declined nearly 5% during early trade on Wednesday, after the paintmaker's disappointing third-quarter earnings due to weak festive demand and a slowdown in urban centers, which the company fears will persist.

The company reported a 23% year-on-year fall in net profit at Rs 1,110 crore in the October-December period. However, the profit met estimates. Its revenue from operations fell 6.1% to Rs 8,549 crore, as compared with Rs 9,103 crore during the same quarter last year.

Margins contracted to 19.1% from 22.6%, due to inferior product mix and increased sales and distribution expenses. Ebitda dipped 20.4% to Rs 1,637 crore versus Rs 2,056 crore.

The demand condition is expected to remain muted, and stress in urban situation will likely continue, Citi said in a note, after trimming its earnings projections and maintaining its 'sell' rating on the stock.

Rise in competitive intensity for market share, talent, and shelf-space, and mind share will keep Asian Paints' margins under pressure. To add to that, weakness in urban demand and a rise in competition in terms of mergers and acquisitions may also hurt earnings, ultimately leading to rating downgrade, Citi said.

The volume growth came at 1.6%, while value growth was negative at 1.7%, according to company executives in a post-earnings concall. The company maintained guidance of double-digit volume growth in the decorative business. While, Ebitda margin guidance is at 18-20%. It aims for single-digit volume growth.

The price hike hangover is expected to be carried forward in the March quarter as well, while stress in urban areas may continue, the management said.

Asian Paints share price declined 4.97% intraday to Rs 2,237 apiece. The scrip was trading 4.05% lower at Rs 2,259 per share as of 10:10 a.m. The benchmark NSE Nifty 50 was flat.

The stock has fallen 22% in the last 12 months and 0.9% on a year-to-date basis. Total traded volume so far in the day stood at eight times its 30-day average. The relative strength index was at 60.

Ten of the 39 analysts tracking Asian Paints have a 'buy' rating on the stock, 11 recommend a 'hold' and 18 suggest a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 8%.