Hold Asian Paints; target of Rs 1410: JM Financial

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26 Aug, 2025 12:21

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JM Financial's research report on Asian Paints

Asian Paints’ 2QFY19 report was a clear disappointment – more from a mix/margin angle, even as volume growth of ‘low double-digit’ turned out to be tad higher vs our forecast of c.8%. What is not clear, though, is how a double-digit volume growth translated into a mere 8.5% growth in revenue, considering the cumulative price-hike of 3.5% effected thus far (1.5% in Mar’18 plus 2% in May’18; the pricing action in Jul’18 was realisation-neutral, i.e. price-cut was effected to entirely pass on the 10ppt cut in GST rate). This apparent deterioration in mix further pressured margin which seems to have compressed much more than warranted by the inflation in RM prices. One possible explanation could be additional trade payouts to re-imburse for value-loss on transition stocks due to the tax cut but considering the lean trade inventory, we reckon the impact of the same would be no more than 1-1.5ppt.

Outlook

The stock could trade down on the back of this result; we await management’s view on the mix-related issue. The stock is nearly flat vs 12M ago level, and the current result could provide a good entry opportunity into what we still view as a very attractive long-term business franchise.

For all recommendations report, click here

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