Largecap Paint Stock Asian Paints Plunges As Much As 4% On Weak Q1 Results; Brokerages Cautious

Asian Paints, one of India's leading paint manufacturers, reported a disappointing set of financial results for the quarter ended June 2025. On July 17, the company announced a 25% year-on-year decline in net profit, which fell to Rs 1,170 crore. This figure was lower than the most pessimistic brokerage forecasts, which had anticipated a 17% drop.

In addition to the sharp decline in profit, Asian Paints' revenue from operations also failed to meet analysts' expectations. The company's revenue dropped by more than 2% year-on-year, settling at Rs 8,970 crore. The market reacted to this news, with Asian Paints emerging as one of the top losers on the Nifty 50 index. By 9:20 am, the stock had fallen 2.7% in morning trade, reaching Rs 2,895 per share.

The June quarter was fraught with challenges for Asian Paints. The company faced a combination of factors, including a severe heatwave, ongoing general elections, and supply-side issues. These challenges were compounded by price cuts and an adverse product mix, resulting in a 3% value decline in the domestic decorative business.

The impact of inflation was also keenly felt, with raw material prices rising by 1.8%. In response, Asian Paints implemented a 1% price increase. The company has indicated that further price hikes may be necessary, projecting raw material inflation of 1.5% for the current quarter.

Despite these setbacks, the management of Asian Paints remains optimistic about the future. They have maintained their guidance of achieving double-digit volume growth for the fiscal year 2025 (FY25F), with a value/volume gap of 5-6%.

The disappointing results prompted several brokerage firms to reassess their outlook on Asian Paints. Kotak Institutional Equities slashed its 12-month target price for the stock from Rs 2,974 per share to Rs 2,600 per share, issuing a 'Reduce' rating. The brokerage firm's report highlighted the increase in the cost structure, driven by investments to counter new competition, amid weak demand. Kotak noted that the company's EBITDA margin had contracted by 300 basis points to 19% for FY2025E, even though competitor Grasim has not yet gained significant traction.

Kotak's report expressed caution, citing the persistent demand weakness and the potential long-term impact of Grasim's entry into the market on industry profitability. As a result, Kotak reduced its EPS forecasts for FY2025-27E by 4-7% and revised its fair value estimate to Rs 2,600 per share, valuing Asian Paints at 45 times its projected September 2026 earnings.

Motilal Oswal offered a slightly more optimistic view, maintaining a 'neutral' rating on Asian Paints with a target price of Rs 3,150 per share. The brokerage firm's note acknowledged the 2% year-on-year decline in consolidated revenue and the 3% decline in standalone revenue for the first quarter of FY25. Decorative volume growth was reported at 7% year-on-year, although this fell short of the estimated 12% growth.

Motilal Oswal attributed the revenue growth challenges to several factors, including price cuts in the previous quarter, an unfavourable product mix, general elections, and heat waves. The firm also noted that the value versus volume gap had narrowed to 5-6%, compared to approximately 12% in the fourth quarter.

Despite various initiatives undertaken by Asian Paints to boost volume growth, Motilal Oswal expressed concerns about revenue growth in FY25. The brokerage firm pointed to the impact of price cuts, downtrading, and competitive pressure. Additionally, sustaining the current high-level EBITDA margin was identified as a challenge for the company in the near term. Consequently, Motilal Oswal reiterated its neutral rating with a target price of Rs 3,150, based on 45 times the projected FY26 earnings per share.

The shares of Asian Paints were seen trading with cuts of more than 1% at Rs 2,940.30 per share as of 10:50 am on the National Stock Exchange (NSE). The stock has delivered negative returns of more than 15% in the last one year.