Mon Nov 11 06:57:11 UTC 2024: ## Asian Paints Stock Plunges 9% on Weak Q2 Results

**Mumbai, India -** Shares of Asian Paints Ltd tumbled by 9% on Monday after the paint manufacturer reported disappointing September quarter results that fell short of analysts’ expectations.

The company witnessed a 0.5% decline in year-on-year volumes, contrasting with a 3-4% growth reported by its competitors. Sales and Ebitda figures took a significant hit, raising concerns among analysts.

Nomura India responded by slashing its FY25-FY27 EPS estimates by 13% each, attributing the revision to the weak results. The firm downgraded its target price to Rs 2,500 from Rs 2,850, citing a 20% decrease from its past 10-year average P/E.

“We maintain our Neutral rating,” Nomura stated, “forecasting an EPS CAGR of 12 per cent over FY25-27F.”

The stock’s decline reached a low of Rs 2,511.65 on the BSE. Other investment banks followed suit: JPMorgan downgraded Asian Paints to “underweight” and slashed its target price to Rs 2,400, while Jefferies suggested a target price of Rs 2,100. Morgan Stanley, however, sees the stock at Rs 2,522.

Nomura attributed the weak performance to several factors, including:

* **Inferior mix:** Lower sales of high-margin exterior paints.
* **Higher raw material inventory:** Inflated prices.
* **Residue price cuts:** Reduced pricing for leftover materials.
* **Higher rebates:** Competition and weak demand led to increased dealer incentives.

Despite taking a 2.5% price hike in Q2, Asian Paints is expected to experience flat pricing in Q3 and 2-2.5% growth in Q4, according to Nomura.

The company’s OPM contracted by 480 bps YoY to 15.4%, below Nomura’s forecast of 18.4%. This was mainly due to a 13% year-on-year increase in staff costs, a trend observed across the industry.

However, the gap between Asian Paints’ OPM and its peers has narrowed in Q2, with Berger Paints at 15.6%, Kansai Nerolac at 10.9%, AKZO Noble at 14.9%, and Indigo Paints at 13.9%.

Nomura expects margins to improve for Asian Paints and other players in Q3 due to softer input costs, a better product mix, and the full impact of Q2 price hikes.

Despite these optimistic projections, Asian Paints’ EBITDA declined sharply by 28%, exceeding Nomura’s and consensus estimates of -8-9%.

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