Asian Paints slips 25% in two months. Should you buy the dip?

Analysts hold mixed views on Asian Paints Ltd after it reported September quarter results that fell below expectations. The paint major posted a 42% year-on-year drop in consolidated net profit to Rs 694.64 crore in Q2FY25 on November 9. Consolidated gross sales declined 5.3% YoY to Rs 8,003 crore. The company’s shares have also witnessed some correction in the past two months.

The scrip retreated nearly 25% to Rs 2,542.65 on November 11, 2024, from Rs 3,366.15 on September 11. On the other hand, the benchmark BSE Sensex lost nearly 4% during the period.

Brokerage JM Financial retained a ‘Sell’ rating on Asian Paints with a target price of Rs 2,510. “Asian Paints Q2FY25 was weak on all counts—decorative sales decline of 5.7% (industry decline of 3-4%) with volume decline of 0.5% (last volume decline was in Q1FY21). Volume performance is weaker than our estimates & also versus management target of double-digit volume growth,” JM Financial said in a report.

Other paint majors such as Berger Paints and Kansai Nerolac witnessed a 7.54% and 30.69% YoY decline in their consolidated net profit for the September quarter.

JM Financial added that the domestic performance appears (of Asian Paints) weaker than listed peers like Berger Paints, Indigo Paints and Kansai Nerolac. Further the management’s outlook on the second half was relatively more cautious as compared with peers with no immediate recovery in October (due to high base) and intense competitive activity across segments (from organised and unorganised players).

“Factoring weak Q2 and challenging operating environment, we cut our FY25-27E estimates by 8-11%. Competitive activity in paints segment is intensifying. We believe earnings volatility will continue as it is difficult to gauge quantum of impact the changing competitive landscape can have on profitability and how long it will last before environment stabilizes,” JM Financial said.

Brokerage Nirmal Bang Institutional Equities maintained a ‘Hold’ rating on Asian Paints with a target price of Rs 2,675, indicating an upside of 5% from the current levels.

“Asian Paints Q2FY25 results were below expectations. The company attributed the same to weak consumer demand, persistent rains through the quarter and floods in some parts of the country, price cuts taken last year, shift in mix and increased rebates,” Nirmal Bang Institutional Equities said.

On the other hand, Nuvama slashed the target price-to-earnings valuation to 50 times (earlier 55 times). “This with a rollover to Q2FY27 yields a target price of Rs 3,185 (earlier Rs 3,450). The second half of FY25 shall be better for paint companies. Although we maintain ‘Buy’; in the near term, we prefer smaller paint players,” said Nuvama in a report.