Asian Paints posted muted revenue growth in Q2 FY24, lagged market expectations, but brokerages haven't yet lost hope as they expect the company to see better days in the October-December quarter.
The subdued revenue growth in Q2 was on account of a delayed festive season and erratic monsoon, which heavily weighed on consumer demand. Adding to that, the second quarter is generally a weak one for paint manufacturers.
At 09.22 am, shares of Asian Paints were trading around a percent lower at Rs 2,936.20 on the NSE.
However, the company is set to enjoy the benefits of the delayed festive season in Q3. Brokerages such as Morgan Stanley, Nuvama Institutional Equities, Motilal Oswal Financial Services and HSBC forecast a strong rebound in volumes and revenue growth for Asian Paints in Q3.
Concerns around the hardening of crude prices and Grasim's foray into the paints business being round the corner still prevail.
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In such a situation, the management's optimism for an extended festival season, foreseeing a rise in rural growth in H2 FY24, buoyed by expectations of a bountiful harvest and an improving economy due to effective government spending ushers confidence, as stated by MOFSL.
Recovery on the cards
Brokerage firm Jefferies has an 'underperform' call on Asian Paints with a price target of Rs 2,500. It remains positive on the management's bullishness and believes that the shift in the season in Q3 could show up in double-digit volume growth for the paintmaker.
The management has also guided for a double-digit volume growth for Q3 and FY24 along with expectations of rural demand picking up in the coming quarters.
Supporting the view, Morgan Stanley also expects Q3 growth to be strong amidst a delay in the festive season. The firm has an 'underweight' call on Asian Paints with a price target of Rs 2,702.
On the other hand, HSBC was impressed by the margin expansion showcased by Asian Paints and believes that it remains on upward trajectory. The brokerage also backed expectations of a rebound in volume growth in Q3.
"The outlook for the second half of FY24 remains strong and the valuations for Asian Paints also look appealing," the firm stated in a note. HSBC has a 'buy' call on the stock with a bullish price target of Rs 4,000.
Crude concerns persist
The upward move on crude prices amidst growing geopolitical tensions in the Middle East as the company had started enjoying the benefits of lower raw material prices is a major concern for most brokerages.
Nuvama, which has a 'buy' call on the stock with a target price of Rs 3,505, also sees a spike in raw material prices given geopolitical issues and a lag in rural recovery as major downside risks for Asian Paints.
"Looking ahead, there is an anticipation of potential upward movement in input costs. This is influenced by larger geopolitical factors and currency fluctuations, particularly expecting an upswing in material prices, especially those derived from crude," MOFSL mentioned in its report. The firm has a 'neutral' rating for Asian Paints with a price target of Rs 3,100.
Adding to that, Jefferies also highlighted that Grasim's entry into the paints business is just six months away now, which causes heightened uncertainty for Asian Paints.
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