Shares of Asian Paints Ltd tumbled 9 per cent in Monday's trade, as the paints maker's September quarter results came in weaker than peers. Analysts said volumes decline of 0.5 per cent year-on-year, even as peers recorded volume growth of 3-4 per cent. Sales and Ebitda fell sharply, worrying analysts.
Nomura India cut its FY25-FY27 EPS estimates by 13 per cent each to factor in the weak results. It rolled forward its estimates to September 2026 and valued Asian Paints at a P/E of 45 times, 20 per cent below its past 10-year average).
"Hence, we cut our target price to Rs 2,500 (against Rs 2,850 previously). We forecast an EPS CAGR of 12 per cent over FY25-27F. We maintain our Neutral rating," it said.
The stock fell 9.3 per cent to hit a low of Rs 2,511.65 on BSE. JPMorgan has reportedly downgraded the Asian Paints stock to underweight and cut its target price to Rs 2,400. Jefferies suggested a target price of Rs 2,100 on the stock. Morgan Stanley sees the stock at Rs 2,522.
Nomura India said gross profit margin for Asian Paints contracted 260bp YoY to 40.8 per cent in Q2 against its forecast of 42 per cent due to inferior mix (lower sales of high-margin exterior paints); higher price raw material inventory; residue price cuts; and higher rebates to dealers due to weak demand and competition.
Asian Paints has taken 2.5 per cent price hike during Q2, which Nomura believes will lead to a flat pricing in Q3 and 2-2.5 per cent pricing growth in Q4.
For Q2, OPM contracted 480 bps YoY to 15.4 per cent, below our forecast of 18.4 per cent due to higher staff costs -- up 13 per cent YoY, which was also to be seen across all other players.
"Asian Paints' OPM gap vs peers has narrowed considerably in 2Q with Berger Paints at 15.6 per cent (down 150 bps YoY), Kansai Nerolac 10.9 per cent (down 310 bps YoY), AKZO Noble at 14.9 per cent (up 10 bps YoY) and Indigo Paints at 13.9 per cent (down 125 bps YoY).
"We expect APNT’s margins (and other players also) to improve from 3Q with: (1) softer input costs seen at end- 2Q; (2) better mix; and (3) full impact of price hikes taken in 2Q. EBITDA declined sharply by 28 per cent vs our and consensus estimates of -8-9 per cent," Nomura India said.