Asian Paints Q3 Preview: Profit could see 22% fall as demand, increased competition weighs

Asian Paints' net profit is likely to fall 22 percent on-year to Rs 1,131 crore, according to a Moneycontrol poll.

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India’s largest paint player Asian Paints is set to report its earnings for the third quarter of the current fiscal year on February 4. However, muted urban demand and a high base from the previous year could dampen the company's performance.

According to a Moneycontrol poll of 10 brokerages, Asian Paints is likely to report a 3.4 percent fall in revenue growth on-year Rs 8,797 crore, down from Rs 9,103 crore reported during the same time last year.

Net profit is likely to fall 22 percent on-year to Rs 1,131 crore, down from Rs 1,448 crore from the corresponding quarter last year.

Earnings estimates of analysts polled by Moneycontrol are in a diverse range. Even the optimistic estimate sees Asian Paints’s net profit falling 13.5 percent year-on-year, while the most pessimistic outlook sees it slipping around 28.5 percent on-year.

What factors are driving the earnings?

The consumer demand was muted during the quarter as a result of the weak festive season. Further, the high base last year will impact earnings growth.

Urban Slowdown: Brokerages believe that Asian Paints shall grow slower than peers even in Q4FY25 as Asian Paints dominates big cities, which are facing the brunt of the slowdown.

Margins: While the price hikes will lead to Asian Paints' gross margins expanding on a quarterly basis, an adverse mix and negative operating leverage are likely to result in margin compression on YoY basis, noted JM Financial.

Further, EBITDA margins may compress by 390 basis points to 18.7 percent in Q3, according to the Moneycontrol poll. The fall will be led by negative operating leverage, increased A&P spends and heightened operating costs (in light of increased competition).

Volume Growth: According to brokerages, the volume growth is likely to come in between flat to 2.5 percent.

What to look out for in the quarterly show?

The raw material prices and their impact on margins will also be watched, along with increasing competitive intensity. Further, there will be a close watch on any commentary on price hikes and narrowing gap between volume and value growth.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.