Analyst call tracker: HUL, Asian Paints among struggling giants in consumption space

The knives were out for HUL after the company reported a lackluster set of numbers for Q3 FY24

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

What a difference a year makes. In January 2023, having Hindustan Unilever or Asian Paints in your portfolio was a badge of honour, a clear sign that you were a serious, level-headed investor who preferred quality over quirkiness.

Fast forward to today, and both these storied titans of corporate India find themselves in the list of companies that have seen the most downgrades over the past year, as per Moneycontrol’s Analyst Call Tracker for January 2024.

With the number of ‘sell’ and ‘hold’ calls far outstripping ‘buy’ recommendations, HUL and Asian Paints are also among the companies with the highest level of pessimism in the Nifty pack.

Curiously, both companies are bedevilled by a common foe: rising intensity in competition.

The heat is on

The knives were out for HUL after the company reported a lacklustre set of numbers for Q3 FY24.

Its standalone net profit increased just 0.55 percent on-year to Rs 2,519 crore, while revenue dipped 0.38 percent to Rs 14,928 crore. Both the numbers were down sequentially—a rare event for HUL.

Underlying volume growth—a key metric for FMCG firms, which measures their increase in turnover excluding the impact of price hikes—came in at 2 percent, as against 5 percent for the year-ago quarter.

Analysts highlighted two major reasons for the poor showing: continued weakness in rural demand and smaller regional players biting at HUL’s heels.

“Interestingly, management also expects the number of categories where it would win share to be lower in the coming couple of quarters—this is due to regional and smaller players getting more aggressive in the marketplace,” analysts at JM Financial wrote in a note.

“With a rural recovery driver nowhere in sight, we expect HUL’s stock to remain under pressure for the near-term,” the note added.

Also Read: HUL Q3 disappoints Street, brokerages slash target prices amid uncertain outlook

HUL shares have declined nearly 7 percent over the past year, while their 3-year return stands at 6.8 percent.

A similar script played out in Asian Paints’ Q3 performance.

While the company’s Q3 consolidated net profit surged 34 percent to Rs 1,475.16 crore, revenue growth, at 5 percent, missed Street estimates.

While it posted a healthy 12 percent y-o-y volume growth supported by festive demand, analysts expect it to encounter operational challenges in the near-term.

“An expected build-up in competition from newly entered large players would pose a risk to profitability in the near term,” domestic brokerage house Sharekhan said.

Grasim Industries, part of the Aditya Birla Group, is set to enter the paints market in Q4 FY24, selling its products under the brand name ‘Birla Opus’. A number of other smaller players, including JSW Paints and JK Paints, are also ramping up capacity.

With this, Asian Paints has a job on its hands to protect its 50-plus percent market share in the organised decorative segment.

Analysts tracker: What's driving downgrades for BPCL despite a rally in stock?

The entry of a large player in the decorative paints industry might put pressure on the market share of smaller players in the near term, said the Sharekhan note.

“In the medium-long term, the decorative paints industry is expected to clock a 12% CAGR over FY2023-FY2027 to Rs 1,00,000 crore…,” it added.

The growth drivers include a reduction in the repainting cycle to 4-5 years (from 8-10 years earlier), increased construction activity due to new real estate projects, and upgradation of premium brands in cities and large towns.

Give and Take

Both HUL and Asian Paints face another predicament: benign raw material prices are boosting their gross margins, but with competition intensifying, their advertising expenses have risen, capping profitability.

HUL’s gross margin expanded by 400 bps q-o-q to 51.5 percent in Q3 FY24, led by moderation of input costs.

“…the gains were ploughed back into higher advertisement spending (up 261 bps yoy at 10.5% of sales), restricting the EBITDA margin expansion to 10 bps yoy at 23.3%,” InCred Equities wrote.

The HUL management expects the EBITDA margin to remain in the 23-24% range in the near term.

Asian Paints, too, logged an EBITDA margin of 22.6 percent in Q3, as against the Street’s expectation of around 21 percent.

“Further, favourable input prices are expected to keep gross margins improving. However, with competition (Grasim) expected to roll out its new paints portfolio in Q4 FY24, we expect higher brand spends to keep Asian Paints’ margins in check,” analysts at Anand Rathi noted.

Asian Paints shares have climbed around 8 percent over the past year, while the 3-year return stands at 25 percent.

Disclaimer: The views and investment tips expressed by 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.