Today 26.7.23, Asian Paints, one of India’s leading paint manufacturers experienced a severe decline of nearly 1% in its shares. This drop was a sequence of the 4% fall in the previous session. This QI result induced different market perceptions and outlined few factors behind the fall, which are shared further.
Severe Asian paint share decline despite strong overall growth
Asian Paint reported an overall net profit of ₹1,574.84 crore in Q1, at the end of June 2023. They attained an impressive growth of 52% compared to the same Q1 last year, which is ₹1,036.03 crore. The overall revenue from operations during Q1FY24 also hiked 6.6%, raised from ₹8,606.94 crore to ₹9,182.31 crore alongside the profit in growth.
Regardless of the strong consolidated revenue, international businesses are concerned about something. The sales in the area dropped by 1.4%, from ₹705.2 crore in the Q1 of the previous year to ₹695.1 crore. The reason for the decline was directing the forex crisis, economic uncertainty, and liquid issues that badly reflected on the Asian and African Markets.
Views of brokerage houses on the decline
The decline and the results made analysts speculate on the future of the company. Some experts are reporting that Asian paints might deploy price cuts in the future due to the increasing cost of raw materials. Meanwhile, it also raised worries over the new players in the paint industry, specifically due to the expected entry of Grasim, a new paint company with crucial financial resources.
Brokerage houses analyzed the Q1 results of Asian paint and share their views on the stock. Here some of the perceptions are covered.
Motilal Oswal Financial Services: The brokerage house maintained a cautious stance, noting that the paints segment might not enjoy the higher multiples seen in the past. They stated that the re-rating as an important stock price appreciation driver for Asian paints in recent years. The neutral rating was re-iterated by them with a target value of ₹3,120 per share.
Nuvama Institutional Equities: This brokerage house stayed positive about Asian paints stock irrespective of the advent of Grasim. They believed in their high entry barriers and robust research and development. ‘Buy’ rating was maintained on the stock and hiked the target price from ₹3,880 to ₹4,045.
Kotak Institutional Equities: This brokerage has seen the Q1 results of Asian Paint as the focus shifted towards profitability from market share and growth. Due to increased competition density, the brokerage anticipated a drop in EBITDA margin and modest earnings growth over FY2024-26E. They maintained a ‘reduce’ rating with a target price of ₹3,050 per share.
JM Financial: The Q1 result of Asian Paint failed to meet the expectation of the brokerage and ended slightly below the predicted value. However, they accepted the progression of healthy gross margin and sturdy operating margin. ‘Hold’ call was maintained by the JM financial and they hiked the target from ₹3,480 to ₹3,575 per share
However, Asian Paints remained a crucial player in the market regardless of mixed reactions from the Market. In the Bombay Stock Exchange, at 11:10 am, the share price of the company was traded at 0.46% lower at ₹3,384.50 apiece
Bottom Line
Asian Paints will be closely watched by investors and stakeholders as it navigates the challenges arising from heavy competition and the impact of economic conditions on international operations. There is no doubt that the company will make strong progression in its local decorative part, the future aspects of the stock will be a matter of market participant’s clear interests.