Asian Paints falls 4% post weak Q1 profit; here's what brokerages say

Shares of Asian Paints Ltd dipped as low as 4% during the early morning trade as the company reported a 25% fall in its net profit in the April-June quarter of FY2024-25, much below estimates by analysts. Mumbai-based paint major reported a 24.5% decline in its consolidated net profit at ₹1,170 crore compared to ₹1,550.4 crore in the year-ago period. The company's net sales decreased 2.3% to ₹ 8,943.2 crore from ₹9,153.8 crore.

The company's gross margin was compressed 40bps YoY to 42.5% in Q1 FY25, due to commodity inflation and inferior product mix. However, it took a price hike of around 1% in July 2024, which could improve the margins in the coming months. The company's EBITDA margin experienced a sharp decline, down 422bps YoY, at 18.9% in Q1 FY25 and EBITDA fell 20% YoY to ₹1,690 crore, primarily due to an increase in employee cost and operating overheads.

Asian Paints shares are trading at ₹2,929.75 today, down 44.65 or 1.50%, on the BSE (12.01PM), with an m-cap of ₹2,81,020.97 crore. The scrip's one-year return has fallen by 16.59%. In the past six months and one year, the scrip fell 7.67% and 13.98%, respectively.

Brokerages on Asian Paints Q1 FY25 results:

Phillip Capital

The brokerage says Asian Paints' domestic decorative paints business -- 85% of total consolidated sales -- reported 7% volume growth against 7.5% estimated. Volume growth was also lower than the guidance given during Q4 FY24 on the strong heatwave and general election, which impacted the sales performance in April and May. "The impact was marginally offset by a recovery in June post-election result."

The brokerage maintains a "NEUTRAL" rating on the stock, with a revised target price of  ₹2,750, from ₹2,900 earlier. "We have trimmed our EPS by around 7% for FY25 & FY26 as margin will be under stress due to commodity inflation, increased focus on BOP products (inferior product mix), investment behind feet on the street and providing continuous media support and increase in distribution cost. We’ve tweaked our topline by negative 3% due to slower growth in the Premium and Luxury portfolios coupled with negative price impact. Moreover, any significant loss of market share in the decorative paints segment due to intense competition from new players could be trigger for valuation de-rating in the near to medium term (already valuation is corrected by ~25%+ in last 1 year)."

Centrum Research

The brokerage has retained its "BUY" rating on the stock, with a revised discounted cash flow (DCF)-based target price of ₹3,443, while also saying that despite a weak demand environment, the company reported 7% volume growth. "We expect APNT to emerge as a strong player, moving from share of surface to share of space inside the home in line with its core strategy: (1) upgrade volumes using innovations in economy/luxury emulsions, (2) grow project/institutional business, (3) expand waterproofing business, (4) grow rural reach, and (5) gain volume market share, yet balance margins."

Recent price hikes indicate the company is unruffled by the competition and remains a case for structural growth story. "With weak Q1 performance, we cut earnings for FY25E/FY26E by 5.2%/5.7% and retain BUY, with a revised DCF-based TP of Rs3,443 (implied 50.5x FY26E EPS). Key risks to our call include weak demand conditions, rise in crude oil prices & rising competition."