Asian Paints Shares Drop 9% as Brokerages Raise Concerns Over Disappointing Q2 Results

Asian Paints shares dropped over 9% on November 11 after several brokerage firms expressed concerns over the company's disappointing Q2FY25 results, citing weak demand and rising competition.

As of 11:20 AM, Asian Paints share price had declined more than 8% to ₹2,541.55. Year-to-date, it has fallen by nearly 25%, significantly underperforming the Nifty 50 index, which is up by 10% during the same period.

JPMorgan downgraded its rating on Asian Paints to 'Underweight' and reduced the target price from ₹2,800 to ₹2,400, citing a substantial miss in operating performance. The company's profit-before-depreciation, interest, and tax (PBDIT) margin fell to 15.5% in Q2FY25 from 20.3% the previous year. CEO Amit Syngle attributed the dip in operating margins to last year's price cuts, higher raw material costs, and increased sales expenses.

CLSA maintained its 'Underperform' rating with a target of ₹2,290, attributing it to weak consumer sentiment, which has led to slower sales growth compared to competitors.

In its Q2FY25 report released on November 9, Asian Paints disclosed a 42.4% year-on-year drop in consolidated net profit, down to ₹694.64 crore from ₹1,205.42 crore. Revenue from operations decreased 5.3% year-on-year to ₹8,003 crore, falling short of the ₹8,528 crore forecast by Moneycontrol. Consolidated PBDIT, excluding profits from associates, decreased by 27.8% to ₹1,239.5 crore, with the PBDIT margin dropping from 20.3% a year ago to 15.5%.

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CEO Amit Syngle noted that weak consumer demand and adverse weather conditions impacted the company's performance. The domestic decorative coatings segment saw a slight volume decline, and domestic coatings revenue dropped by 5.5%, driven by sluggish consumer sentiment and extended rainy weather in some regions.

Syngle added that last year’s price reductions, along with higher input costs and increased sales expenses, affected operating margins, though recent price increases should bolster margins in the second half of the fiscal year.

Nomura also revised its target price down from ₹2,850 to ₹2,500 and maintained a 'Neutral' rating. Nomura analysts pointed out that while other players adjusted their product mix to sell fewer low-value items (such as putty and distemper), Asian Paints saw a less favorable mix. They expect some volume recovery in the second half due to postponed demand and potential rural market improvements, but forecast overall sales and EBITDA to remain subdued.

Morgan Stanley and Jefferies echoed similar concerns, assigning 'Underweight' and 'Underperform' ratings, respectively. Morgan Stanley cited the ongoing challenges posed by unfavorable weather and demand conditions, while Jefferies highlighted Asian Paints’ broad-based underperformance amid intensifying competition.