Will Asian Paints stock fall after Q1 show? Goldman Sachs, others share views, price targets

After reporting a disappointing set of quarterly results, Asian Paints shares could come under pressure in the short run. Analysts said the headwinds continue, with revenue falling for the second straight quarter, volume growth declining below the management guidance of double-digit growth and earnings outlook looks significantly weaker, especially with the overhang of rising competition. Add to that are rich valuations, which leaves little on the table.

Goldman Sachs, which suggested a target price of Rs 2,750 on Asian Paints, said Asian Paints' 1QFY25 results were significantly below its estimates, with consolidated Ebitda declining 20 per cent YoY. This was driven by weakness across volume growth, revenue growth and Ebitda margins, the brokerage said.

Asian Paints' consolidated revenue declined 3 per cent YoY due to a combination of 7 per cent volume growth, 4 per cent price decline and 5-6 per cent deterioration in product mix.

"This marked a clear slowdown compared to the past four quarters. The management stated that the harsh summer season and election related disruptions in government construction activity adversely impacted 1QFY25, and the company saw some improvement in trends in June after the elections were over, Hence, the management gave guidance for double digit volume growth for the rest of FY25," Goldman Sachs said.

Nomura India values Asian Paints at a P/E of 45 times, at a 20 per cent discount to its past 10-year average due to low earnings growth and overhang of higher competition due to the launch of new player / brand Birla Opus. "We arrive at a lower target price of Rs 2,850 from Rs 2,925 earlier. Jefferies has cut its target price on Asian Paints to Rs 2,100. JPMorgan suggested 'Neutral' on the stock with a target of Rs 2,800.

Nirmal Bang Institutional Equities seek better entry point in order to turn constructive on the stock. A combination of weak results, ongoing downtrading and increasing material and staff cost pressures resulted in 5 per cent cut in Nirmal Bang's EPS estimates for FY25E and FY26E. While the brokearge believes that Asian Paints may eventually outlast new competition, both margins and multiples will be in check in the interim, it said while suggesting a target of Rs 2,915 on the stock.

MOFSL said it remains cautious for both value growth and margin in FY25 and FY26. Despite a correction in the Asian Paints stock, competitive pressure still hovers around earnings, it said while suggesting a Neutral rating on the stock with a price target of Rs 3,150.

Nuvama Institutional Equities kept its Buy rating intact on the stock. It said Q1 was weak due to heatwave and elections. "Given the miss versus consensus, a slight near-term downtick in the stock can be considered a buying opportunity. We shall watch out for rural consumption recovery and further price hikes. Retain ‘BUY’ with a target price of Rs 3,450," it said.