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Premium Mix Fuels Momentum, but Margin Pressure Persists

Est. Vs. Actual for Q2FY27: Revenue – BEAT; EBITDA – MISS; PAT – MISS

Changes in Estimates Post Q2FY27

FY27E/FY28E: Revenue: -2%/-3%; EBITDA: -12%/-13%; PAT: -13%/-14%

Recommendation Rationale

* Steady Performance: In Q2FY27, Asian Paints recorded a ~17% YoY expansion in consolidated top-line revenue, led by volume growth and 8% price hikes. The core Indian decorative segment aligned with expectations, delivering a 6.4% volume increase alongside 14.5% value growth. This was fueled by a 5% calibrated pricing revision, an expanding retail footprint, and higher rural penetration, which continued to run ahead of urban demand. Meanwhile, international operations demonstrated resilience, advancing 23.7% YoY on growth from the Middle East and Africa. Premiumization gained momentum, with new, innovative products accounting for ~18% of consolidated revenue.

* B2B Business Rocketing Up: Consolidated volume growth was supported by the fastgrowing B2B segment, which demonstrated healthy momentum driven by increased expenditures on infrastructure, urbanisation, and government initiatives. The segment witnessed urban outpacing rural with accelerated growth across Tier 1 and Tier 2 cities. Through platforms such as the Assure and Juggernaut programs, the company offers unified solutions to engage diverse B2B channels, reinforcing operations and positioning the business for sustained expansion

* Margins Pressure: A geopolitically led inflationary environment affected the profitability of the company. Cost of Goods Sold witnessed a 24% increase, causing gross margin contraction by 347 bps during the quarter. Consequently, EBITDA margins contracted 201 bps. The company has taken price hikes, which will soon start reflecting in numbers and will continue to take price hikes in the future. Management aims for gross margins to come back to 41%-43% while remaining confident of EBITDA Margins to remain in the guided range of 18%-20%.

* Demand Outlook: Facing margin pressure from high raw material costs, supply chain issues, and tough competition, Asian Paints plans to protect profitability through brand investment, product innovation, and cost control, while capturing seasonal demand and applying measured price hikes. Over the longer term, the company is anchoring its growth strategy around six core pillars: a massive push on brand building, innovation for differentiation and premiumization, services ignition, widening its reach in the B2B segment, regional market ignition, and backward integration.

Sector Outlook: Positive

Company Outlook & Guidance: Although we have maintained our BUY rating on the stock, we have cut our estimates due to near-term input cost pressure.

Current Valuation: 41x Sep’28E EPS (Earlier Valuation: 47x Jun’28E EPS ).

Current TP: Rs 2,520/share (Earlier TP: Rs 3,270/share)

Recommendation: With a 10% upside from the CMP, we maintain our BUY rating

Financial Performance:

Asian Paints’ consolidated revenue grew by ~17% YoY to Rs 9,977 Cr in Q2FY27. Gross margins contracted by 347 bps YoY to 39.7%, due to a steep cost increase. Meanwhile, EBITDA margins contracted by 201 bps YoY to 15.6%. Adjusted PAT grew by 7.5% YoY to Rs 1,068 C

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