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Business News/ Markets / Stock Markets/  Asian Paints share price drops post Q2 results; should you buy, sell or hold the stock?
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Asian Paints share price drops post Q2 results; should you buy, sell or hold the stock?

Asian Paints share price have performed poorly in the last one year. The stock is down about 3 per cent in the last one year while the equity benchmark Sensex is up about 6 per cent in the same year.

Asian Paints share price has lost about 3 per cent in the last one year. (AP Photo/Andy Wong) (AP)Premium
Asian Paints share price has lost about 3 per cent in the last one year. (AP Photo/Andy Wong) (AP)

Asian Paints share price continued trading lower and dropped 0.14 per cent to close at 2,954.30 on BSE on Friday, October 27, a day after the company reported a flat revenue growth but a 54 per cent year-on-year (YoY) rise in its consolidated net profit for Q2FY24. 

The stock ended 3.36 per cent lower on Thursday, October 26, after the Q2 earnings.

As Mint reported, India’s largest paints company Asian Paints reported a consolidated net profit of 1,205.4 crore for the September quarter, up 54 per cent from 782.7 crore a year ago, despite flat revenue growth.

Its revenue rose a mere 0.3 per cent to 8,478.57 crore during the quarter under review, primarily due to sluggish demand, a delayed festive season as well as erratic monsoon rains.

Read More: Asian Paints’ net up 54% despite flat revenue growth

Asian Paints share price have performed poorly in the last one year. The stock is down about 3 per cent in the last one year while the equity benchmark Sensex is up about 6 per cent in the same year.

Asian Paints share price hit its 52-week high of 3,566.90 on July 24, 2023, and its 52-week low of 2,686.15 on January 27, 2023. As of the last traded price, the stock is down about 17 per cent from its 52-week high.

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Let's take a look at what top brokerage firms say about the stock after the September quarter earnings:

Nuvama Wealth Management

Nuvama has a buy call on the stock but trimmed the target price to 3,505 from 4,045 earlier.

Factoring in a decent Q2FY24, Nuvama has cut FY25 and FY26 EPS (earnings per share) estimates by 5.5 per cent and 5.6 per cent, respectively, and reduced its multiple from 60 times to 55 times.

Nuvama believes a spike in raw material prices given geopolitical issues remains a key risk while the rural segment is yet to recover fully.

Motilal Oswal Financial Services

Motilal Oswal has a 'neutral' view of the stock with a target price of 3,100.

"Changes to our model have resulted in a 3.1 per cent and 0.6 per cent decline in our EPS forecast for FY24 and FY25 respectively," said Motilal Oswal.

The management highlighted the adverse impact of erratic rainfall on demand. Additionally, with input costs on the rise, the margin gains in the second half of the financial year (H2FY24) are not expected to mirror those seen in the first half of the financial year (H1FY24), Motilal Oswal pointed out.

"We remain cautious as the paints segment may not enjoy higher multiples of the past. It needs to be noted that re-rating was a bigger driver of stock price appreciation for Asian Paints over the past five to six years, as the earnings CAGR has been in the 10-12 per cent range," said Motilal Oswal.

"We have assumed FY24 and FY25 EBITDA margins at the top end of the management’s guidance. While improving margins would lead to better ROCE (return on capital employed), new capex plans might dilute it. While we have taken a higher EBITDA and PAT CAGR trajectory at 18.5 per cent and 18.7 per cent, respectively, over FY23–FY25 – higher than the preceding

10-year average in the 13–14 per cent range – valuations are rich at nearly 54 times FY24E EPS and 48 times FY25 EPS," Motilal Oswal said.

Nirmal Bang

Nirmal Bang has an 'accumulate' call on the stock with a target price of 3,290.

Nirmal Bang said Asian Paints reported a weaker-than-expected set of numbers in its Q2FY24 results on all fronts with a miss of 3.6 per cent in sales, 11.3 per cent in EBITDA and 6.5 per cent in PAT.

"While volume growth of 6 per cent was marginally below our estimates of 8 per cent growth there was a substantially weaker mix than expected as a result of downtrading," said Nirmal Bang.

"While the management maintained its FY24 EBITDA margin guidance at 18-20 per cent due to some recent inflation in crude-related costs, we believe the company is being conservative and is likely to exceed the guidance," Nirmal Bang said.

"However, any significant increase in competitive intensity towards the end of FY24 could put our FY25 margins at risk. Rich valuations of about 48 times FY25E EPS lead us to maintain 'accumulate' with a target price of 3,290, valuing the stock at 50 times September 2025E EPS," Nirmal Bang said.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 27 Oct 2023, 09:34 AM IST
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