Hold Asian Paints Ltd For Target Rs. 2,120 - Axis Securities Ltd
Changes in Estimates post Q4FY25
FY26E/FY27E – Revenue: -6%/-5%; EBITDA: -14%/-8%; PAT: -20%/-14%
Recommendation Rationale
Subdued demand: Asian Paints reported a 4.3% YoY decline in consolidated revenue for Q4FY25, falling short of expectations due to demand softness and cautious consumer sentiment. The decorative segment contracted by 5.2% YoY, with muted volume growth of 1.8%, impacted by rising competitive intensity and downtrading. International revenues declined 1.5% YoY, mainly due to macroeconomic headwinds in key African markets. In contrast, the industrial business grew 6.1% YoY, driven by strong performance in the general industrial and auto categories. Home décor continued to face pressure from subdued household spending, with White Teak and Weatherseal under strain, resulting in an impairment charge. The institutional segment witnessed encouraging traction, supported by project-driven demand. The company expanded its retail network to 1.69 Lc outlets during the quarter.
Demand Outlook: Management remains cautiously optimistic amid macro uncertainty, anticipating demand recovery driven by urban markets and support from rural markets through a normal monsoon and continued government spending. The focus continues to be on strengthening core brands, enhancing cost efficiency, and navigating global volatility, while expecting some relief from easing input costs and a potential rupee recovery.
Margins Pressure: The company's EBITDA margins contracted by 219 bps YoY to 17.2%, impacted by an unfavourable product mix and operating deleverage. However, management reiterated that consolidated EBITDA margin will stabilise in the 18-20% range, aided by moderating raw material costs.
Sector Outlook: Cautious
Company Outlook & Guidance: We maintain a HOLD rating on the stock owing to the weak near-term growth outlook.
Current Valuation: 45x Mar-27 EPS; ( Earlier Valuation: 45x Dec-26 EPS ).
Current TP: Rs 2,120/share; ( Earlier TP : Rs 2,440/share).
Recommendation: With a downside of 8% from the CMP, we maintain our HOLD rating on the stock.
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SEBI Registration number is INZ000161633
