Hold Asian Paints Ltd For Target Rs.2,440 by Axis Securities
Weak Demand Outlook Remains; Maintain HOLD
Est. Vs. Actual for Q3FY25: Revenue – MISS; EBITDA – INLINE; PAT – INLINE
Changes in Estimates post Q3FY25
FY26E/FY27E – Revenue: -11%/-15%; EBITDA: -11%/-14%; PAT:-9%/-13%
Recommendation Rationale
* Subdued demand: Asian Paints' Q3FY25 revenue was below expectations, impacted by subdued urban demand and a weak festive season. Consolidated revenue declined 6% YoY, as the decorative segment contracted by 7.8% YoY with modest volume growth of 1.6% due to downtrading. The industrial segment grew 3.8% YoY, supported by strong traction in the General Industrial and Refinish categories. The home décor business saw a slight uptick in kitchen and bath sales, while White Teak and Weatherseal remained under pressure. Institutional demand improved, particularly in the projects segment, driven by factory and builder-led investments. The company also expanded its distribution network to 1.69 Lc retail touchpoints.
* Demand Outlook: Management maintains a cautious stance on-demand recovery over the next few quarters, given the ongoing pressure in urban markets. Rural demand remains relatively better. A favourable monsoon is expected to further boost rural consumption in Q4FY25 and Q1FY26. The company has guided for single-digit volume growth in FY25.
* Margins Pressure: The company's EBITDA margins contracted by 344 bps YoY to 19.1%, impacted by an unfavourable product mix and operating deleverage. Management has guided that 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 Dec-26 EPS (Earlier Valuation: 45x Sep-26 EPS ).
Current TP: Rs 2,440/share (Earlier TP: Rs 2,700/share).
Recommendation: With an upside of 4% from the CMP, we maintain our HOLD rating on the stock.
Financial performance: Asian Paints reported a 6% YoY decline in consolidated revenue to Rs 8,549 Cr in Q3FY25, impacted by weak demand, downtrading, and a muted festive season. Gross margins contracted by 116 bps YoY to 42.4%, despite a 2.1% benefit from material cost deflation and a 0.4% price hike. EBITDA margins declined by 344 bps YoY to 19.1%, weighed down by an unfavourable product mix and higher sales and distribution expenses. Consequently, adjusted PAT decreased by 23.3% YoY to Rs 1,110 Cr.
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SEBI Registration number is INZ00016163
