Paint companies' shares down up to 54% from 52-week highs; here's what to expect post tepid Q2 results

The combined consolidated net profit of paint companies declined more than 30% for the second straight quarter in Q2FY25. Market watchers believe that the sector has been witnessing challenges due to volatility in raw material costs, price cuts impacting revenue growth and concerns related to a slew of new entrants in the market. Consolidated sales of the paint sector also declined for the second straight quarter by 2.60% year-on-year to Rs 14,144.59 crore for the quarter under review.

Meanwhile, shares of paint companies have witnessed a substantial fall from their 52-week high levels. With a fall of 54%, shares of Shalimar Paints have declined the most to Rs 103.40 on November 19, 2024, from their 52-week high of Rs 225.65, scaled in January 2024. Retina Paints, Asian Paints, Kansai Nerolac Paints, Berger Paints, Akzo Nobel and Indigo Paints also retreated somewhere between 12% to 30% so far from their respective 52-week high levels.

“The sector has been under pressure due to intense competition and concerns over entry of new firms in the market,” said Arun Kejriwal, Founder, Kejriwal Research and Investment Services. For the latest quarter ended September 2024, Asian Paints posted a 42.37% YoY fall in consolidated net profit at Rs 694.64 crore, the lowest in at least 12 quarters. The bottom line of Kansai Nerolac Paints also declined 30.68% YoY to Rs 122.79 crore during the quarter under review. The consolidated net profit of Berger Paints and Indigo Paints also slipped 7.5% YoY and 7.7% YoY, respectively.

Sharing its view on Asian Paints, KR Choksey Research in a report said, “We lower our FY25 and FY26 EPS estimates by 9.1% and 14.2% respectively, mainly due to the Q2FY25 miss and margin headwinds from heightened competitive intensity, which are expected to pressurise earnings despite revenue growth.” The brokerage added that management looks cautious about demand recovery in Q3FY25 due to continued pressure in urban areas but is optimistic about improving rural demand and infrastructure spending supporting growth in the H2FY25.

InCred Equities said, “Kansai Nerolac Paints (KNPL) claims urban demand remains firm, but with a new entrant aggressively stepping up its distribution reach and the number 2 player investing in increasing its penetration in urban markets, we expect KNPL to feel the pinch and fight a challenging uphill battle to regain its lost market share.”

According to reports, Birla Opus Paints, launched in 2024, has already introduced 129 products with over 900 SKUs across various categories. 

On the other hand, Shalimar Paints reported a loss of Rs 19.62 crore in Q2FY25 against a loss of Rs 25.62 crore in the same quarter a year ago. Akzo Nobel India managed to report 3.9% year-on-year growth in consolidated net profit at Rs 97.90 crore for the quarter ended September 2024.

Brokerage Asit C Mehta Investment Interrmediates is bullish on Asian Paints, Berger Paints and Kansai Nerolac with a target price of Rs 3,675, Rs 635 and Rs 365, respectively.

“We believe the risk-reward has now started looking favourable for some players, based on expected demand improvement due to declining inflation levels and improving outlook for rural demand. Long-term growth drivers are intact in terms of strong GDP growth, improving per capita income and discretionary spending, and government spending on infra growth schemes such as ‘Housing for all’,” Asit C Mehta Investment Interrmediates said in a report.