Asian Paints hits over 3-yr low; down 30% so far in CY24 on sluggish demand

Since November, the stock price of Asian Paints has declined 19 per cent after it reported weak earnings for the quarter ended September 2024

Asian Paints share price hit an over three-year low of Rs 2,398.05, down 2 per cent on the BSE in Monday's intraday trade, amid challenging demand conditions. The stock of the largest paint company was quoting lower for a sixth straight day, having declined 4 per cent during the period. Since November, the stock price of Asian Paints has declined 19 per cent. It is trading at its lowest level since March 2021.

 

Further, thus far in calendar year 2024 (CY24), Asian Paints' shares have underperformed the market by falling 30 per cent on sluggish demand. In comparison, the BSE Sensex has rallied 13 per cent during the same period. The stock is likely to post its worst-ever calendar yearly performance in a decade.

 

  

The paint industry faced a subdued demand environment during the September quarter (Q2FY25). Domestic Decorative coatings segment volumes declined marginally while overall domestic coatings revenue declined by 5.5 per cent 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, Asian Paints had said while announcing its Q2FY25 results on November 9. 

 

On the margin front, Asian Paints said soft demand conditions, product mix, and material price inflation affected margins in Q2. The management, however, expects 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.

 

That said, analysts at Axis Securities remain positive on Asian Paints' long-term prospects, supported by the management's guidance for continued double-digit volume growth in FY25, buoyed by the long festive season and rural recovery; decline in raw material prices; the company's recent announcement of (a) a VAE and VAM plant, (b) plans for a white cement plant through a joint venture in Fujairah, UAE, to backward-integrate key raw materials, expansion of manufacturing footprint by more than 30-40 per cent, and launch of the differentiated next generation emulsions and waterproofing products based on nanotechnology. 

 

"These are steps in the right direction to achieve the next phase of growth and secure the company's market share in the long term. However, we believe the stock is likely to see sideways movement owing to increased competition from new entrants, which will keep profitability under check in the near term," the brokerage said.

 

Asian Paints' Q2FY25 conference call did not provide any comfort as regards recovery in sales growth in the near term. The management did acknowledge the impact of competition, which got aggravated due to slower industry demand. Contrary to competitors, Asian Paints remains cautious on growth, said analysts at Elara Capital in their result update report.

 

The brokerage firm anticipates further market share erosion and believes investors should not catch a falling knife as the industry is going through structural change. "We reiterate 'Sell' with a lower target price of Rs 2,240 (from Rs 2,640) and would look for signs of reduced competitive intensity to change our view," they said.