India's largest paint player Asian Paints Ltd. shares sank in trade on Friday, May 9, after reporting an underwhelming earnings show for the quarter ended March.
Asian Paints' net profit declined 45 percent year-on-year to Rs 692 crore, falling more than the Street expectations. Consolidated revenue for the fiscal fourth quarter also fell by 4.3 percent to Rs 8,359 crore.
At closing, the stock stood at a decline of 0.13 percent.
"The weak demand conditions prevalent for the past few quarters continued to affect the paint industry even in the last quarter of the financial year," said Amit Syngle, Managing Director & CEO.
Going ahead, for FY26, the management guided for single-digit value growth and EBITDA margin of 18–20 percent. Further, the gap between volume and value growth is 6.5-7 percent, and the firm plans to bring it down to 6 percent going forward.
The current financial year is expected to be better than the previous, especially as a result of government spending returning, which will be a source of reversal in the slowdown. Further, the B2b segment shall gain traction, while the mid-to-luxury housing will flare up. T3/T4 rural demand shall come back due to a good monsoon forecast.
Asian Paints shared that the new entrant into the market, Aditya Birla group's Birla Opus, impacted the competition most than initial expectations, as a result of its increased intensity. CEO Amit Syngle said, "I think we did not anticipate possibly the kind of competitive intensity which would come up, given the fact that demand was not there and everyone was fighting for the same share."
At 9.20 am, shares of Asian Paints trimmed some opening losses to quote Rs 2,285.2 on the NSE, down 0.75 percent.
Also Read | Asian Paints sees impact of rising competition amid muted demand environment
Should you buy, sell, or hold Asian Paints shares?
Domestic brokerage Nuvama Institutional Equities said, "Although new construction demand is likely to pick up, muted demand conditions in repainting and high competitive intensity shall remain a concern going forward." As a result, the brokerage cut its target price on the firm to Rs 2,860 per share, down from Rs 3,000 earlier, while maintaining its 'buy' rating.
Rich valuations however offer limited upside, and the imminent scale up of Grasim and expansion by other players could alter the industry’s margin and pricing structure. As a result, Equirus Securities maintained 'reduce' with a target price of Rs 2,214 per share.
Motilal Oswal noted that Asian Paints' stock has massively underperformed (a 20 percent fall in the last one year) owing to a sharp cut in earnings. Considering the uncertainty of demand recovery in the near term, the performance worries continue. Moderation in RM prices is a positive for the business; however, growth recovery will remain critical for a rebound in the stock performance.
The brokerage maintained its 'neutral' rating, but cut its target price to Rs 2,500 per share, indicating a nine percent upside from the previous session's closing price.
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