Neutral Asian Paints; target of Rs 2550: Motilal Oswal

Motilal Oswal's research report on Asian Paints

Asian Paints (APNT) reported a weak 3QFY25. Its consolidated/standalone revenue declined 6%/8% YoY (in line). Domestic volume inched up 1.6% YoY. Weak industry demand, downtrading, a subdued festive season, and rising competition adversely impacted the growth. The impact of last year’s price cuts (3%) continued to drag value growth despite a 1% price hike in 2QFY25. The decorative paints industry saw a 4-5% decline in 3Q. International business delivered 5% revenue growth (17% in CC terms). Gross margin contracted 120bp YoY but expanded 170bp QoQ to 42.4%, driven by a 2% material cost deflation. EBITDA margin dipped 340bp YoY to 19.1% (est. 18.8%), impacted by an unfavorable product mix and higher sales & distribution expenses to counter competition. EBITDA fell 20% YoY. Management expects revenue weakness to persist for at least two more quarters. The company is targeting to achieve single-digit volume growth in the near term. The company is less worried about competition than industry challenges.

Outlook

The stock has massively underperformed (20% fall in the last one year) owing to a sharp cut in earnings. Considering the uncertainty of demand recovery in the near term, there is limited respite for the stock. Industry volume recovery and competitive strategy on pricing/incentives will be the key monitorables. Considering the uncertainty, we reiterate our Neutral rating with a TP of INR2,550 (based on 45x Dec’26E EPS).

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