Asian Paints Shares Dip Over 9% After Underwhelming Q2FY25 Performance; What To Do?

On November 11, Asian Paints' stock dropped more than 9% as the company's Q2FY25 performance fell short of expectations. Asian Paints' stock fell more than 9.50% from its previous closing of Rs 2,769.45 on Monday, opening on the NSE at Rs 2,565.05 per share and plunging to an intraday low of Rs 2,506 per share. Following the downgrading of Asian Paints by many brokerages due to the company's overall poor performance in Q2, the share price was trading 8.40% lower at Rs 2,536.95 per share during afternoon trades.

According to the firm, its consolidated net sales for the current quarter were Rs 8,003.0 crores, down 5.3% from Rs 8,451.9 crores in the same period last year. Its PBDIT [Profit before depreciation, interest, tax, other income, and exceptional items] (before share in profit of associates) decreased by 27.8% to Rs 1,239.5 crores from Rs 1,716.2 crores the quarter ended September 2023. Its PBDIT Margin reached 15.5%, down from 20.3% at the same time last year. Asian Paints reported that its profit before taxes dropped from Rs 1,650.9 crores in Q2FY24 to Rs 1,139.2 crores in Q2FY25, a 31.0% fall. The consolidated net profit of the company decreased by 42.4% to Rs 694.6 crores in the quarter under review from Rs 1,205.4 crores in the year-ago quarter.

''The paint industry faced a subdued demand environment during the quarter. Domestic Decorative coatings segment volumes declined marginally while overall domestic coatings revenue declined by 5.5% for the quarter impacted by muted consumer sentiments and extended rains and floods in some parts of the country. Operating margins were impacted by the price reductions taken last year, higher material prices and increased sales expenses. While we took price increases during the quarter, full impact of the same should flow through only in the second half of the year," said Amit Syngle, Managing Director & CEO of Asian Paints Limited.

"The Industrial Business did relatively better with single digit value growth supported by growth in the General Industrial, Protective Coatings and Refinish segments. We continued to register growth in our Home Décor categories across our Beautiful Homes Stores network, introducing new collections & product solutions. International Business portfolio registered a marginal decline in revenues for the quarter (8.7% growth in constant currency terms) despite unfavorable market conditions in certain key markets like Ethiopia and Bangladesh," Amit Syngle added.

"On the margin front, soft demand conditions, product mix and material price inflation affected margins in Q2. We expect margins to recover in the coming quarters on the back of anticipated softening in material prices coupled with price increases implemented in the last few months. While demand conditions remain challenging, we continue to direct our efforts towards leveraging our brand strength, robust supply chain and distribution network to pursue growth" said Amit Syngle, Managing Director & CEO of Asian Paints Limited.

JPMorgan downgraded Asian Paints to 'Underweight' following poor Q2FY25 performance, slashing its target price from Rs 2,800 to Rs 2,400. CLSA kept its rating as 'Underperform', with Asian Paints' target of Rs 2,290. Nomura rated the stock as 'Neutral' and reduced its target price from Rs 2,850 to Rs 2,500.

However, for the fiscal year that ends on March 31, 2025, the company has announced an interim dividend of Rs. 4.25 per equity share with face value of Re. 1. The dividend will be distributed to shareholders on or after Thursday, November 28, 2024, with the record date for the interim dividend set at Tuesday, November 19, 2024.