Asian Paints stock price today: Asian Paints stock: Soft Q2 leaves investors disappointed. Should you sell?

NEW DELHI: After reported a soft Q2 September quarter earnings, investors were left disappointed with lower-than-expected growth in revenue and margin pangs. The consistent compounder stock, which has been under pressure in the last few months amid a spike in crude oil rates and entry of new players, fell almost 2% to hit day’s low at Rs 3,080.05 on BSE on Friday.

“Results were well below estimates as realizations and gross margins were severely impacted, primarily led by product mix deterioration caused by (a) slower growth in high margin urban sales unlike the preceding couple of quarters and (b) the adverse impact of downtrading,” domestic brokerage

said.

Stating that the current valuations (~53.6x FY24E P/E) fully capture the upside over the next one year, it has reiterated neutral rating on the “expensive” stock.

In the last five years, the stock has delivered 11.6% earnings CAGR, while the stock price has delivered 24.1% CAGR, implying a significant re-rating.

The Nifty company also announced a capex of Rs 6,750 crore over the next 3-4 years with the primary objective of becoming a more cost-efficient producer that allows it flexibility to price more competitively. Analysts said the company management’s message is clear—prioritize market share gains/defense over margins and return ratios.

Taking a cautious stance on the decorative paints industry amid increasing competition, Kotak Institutional Equities has a reduce rating on the stock. “We tweak revenues, moderate our GM assumptions and broadly maintain EPS estimates. We roll over and retain FV of Rs2,950 (implies 51X December 2024E PE),” it said.

Global brokerage firm CLSA also has an underperform rating on Asian Paints after the quarterly numbers with a target price of Rs 3,425.

“The company is looking to extend its competitive edge. The current valuation asks for healthy growth, but there is margin pressure from a weak sales mix and high-cost inventory,” CLSA said.

said the 60x one-year forward P/E ratio leaves no room for error and forecasts are already fairly optimistic. The brokerage has a target price of Rs 3,505 on the stock with a hold rating.

Describing the capex plan as a masterstroke from an astute market leader to take on new players trying to put a foot in the door, it said the capex commitment looks large but is less than two years’ operating cashflows for Asian Paints.

Securities, however, disagrees saying that while beneficial in the long run, the capex will certainly be a drain on free cash flow and returns profile in the short to medium term. The brokerage has a sell rating on Asian Paints with a target price of Rs 2,700 per share, implying a downside of over 13%.

Sharekhan and Axis Securities remain bulls. “Market share gains, distribution expansion, and sustained innovative product additions will help the company to achieve consistent volume growth and maintain its leadership position in the paints business,” said Sharekhan, which has a target price of Rs 3,689 on the stock.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)