Asian Paints Sinks 5% as Q3 Profit Drops 23%, EPS Targets Cut

In the aftermath of its latest quarterly results, Asian Paints, India’s largest paint manufacturing company, has faced a significant drop in its stock price. On February 5, 2025, the company’s shares tumbled by 5.1% to an intraday low of ₹2,237 per share before settling 3.4% lower at ₹2,275.20. In comparison, the broader market, as indicated by the BSE Sensex, closed 0.4% lower at 78,271.28. This substantial drop has positioned Asian Paints as the top loser among stocks listed on the Sensex and Nifty indices.  

The sharp decline in share price was triggered by a weak earnings report for the quarter ending December 31, 2024. Despite outperforming expectations in terms of volume growth and margins, the company’s overall profit figures and future outlook caused concern among investors and analysts alike. 

Earnings Overview: Profit Declines 23% Year-on-Year

For Q3 FY25, Asian Paints reported a 23% drop in its consolidated net profit, which stood at ₹1,110 crore, compared to ₹1,448 crore during the same period last year. This figure fell short of analysts’ expectations, with consensus estimates pegging the profit at ₹1,144 crore. 

Furthermore, the company’s revenue from operations decreased by 6%, falling from ₹9,103 crore in Q3 FY24 to ₹8,549 crore in Q3 FY25. This downturn in revenue reflects weaker demand and challenging market conditions.

On a standalone basis, the revenue was even more dismal, with a 7.5% decline, amounting to ₹7,289 crore. The drop was attributed to a weaker festive season and continued subdued demand in urban markets. These results have raised questions about the company’s growth prospects in the near term, especially as competition in the paint industry continues to intensify.

Volume Growth and Margins: Mixed Results

While Asian Paints experienced a contraction in overall revenues, there were some positives. The company reported a 1.6% volume growth in its domestic decorative business, which is a key segment of its portfolio. Additionally, margins improved sequentially, which offered some relief to investors. However, the overall year-on-year (YoY) operating margins were affected by an adverse mix, coupled with increased sales and distribution expenses.

The industrial business fared better, with a 3.8% YoY revenue growth, bolstered by strong performance in the General Industrial and Refinish segments. The company’s Home Décor business has also been expanding steadily, further diversifying its revenue streams. 

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On the international front, Asian Paints posted a 5% growth in its overseas business, with a notable 17.1% surge in constant currency terms. The growth was driven by the robust performance in the Middle East and the gradual recovery of macroeconomic conditions in key Asian markets.

Analyst Sentiment: Cautious Outlook for FY25 and Beyond

The muted quarterly results have prompted a range of reactions from analysts, with a majority adopting a cautious stance on the stock. Out of the 39 analysts covering Asian Paints, nearly half have a “sell” rating, with 18 analysts recommending investors to offload their holdings. This includes notable brokerages like Goldman Sachs and Jefferies, which have reduced their earnings per share (EPS) estimates for FY25, FY26, and FY27 by 4% to 8%.

• Goldman Sachs has set a price target of ₹2,275 for the stock, maintaining a “sell” rating. The brokerage cited the company’s worsening revenue mix and the expectation of subdued demand in the near term. Additionally, the increased competitive intensity in the market is expected to weigh on the company’s performance, especially as Grasim Industries, a key competitor, expands its production and distribution network.

• Similarly, Morgan Stanley has placed an “underweight” rating on the stock, with a price target of ₹2,358. While the brokerage acknowledged the better-than-expected margins, it emphasized the need for a recovery in volume growth to support the company’s performance.

• Jefferies, with the lowest target price of ₹2,000, has expressed concerns about the company’s growth trajectory. The brokerage expects margins to remain constrained in the medium term, with gradual demand recovery. Jefferies also expects pressure in Q4 FY25, further contributing to a more pessimistic outlook.

Source: CNBC TV18

Competitive Pressure and the Road Ahead

Looking ahead, analysts have raised concerns about the competitive landscape. ICICI Securities has lowered its earnings estimates for FY25-26 by 3% and set a target price of ₹2,200 for the stock. The brokerage expects the stress in urban markets to persist, resulting in downtrading, which could hurt profitability. They also warned that the competitive pressures are likely to intensify by FY26, which could force Asian Paints to prioritize market share over margins.

Nuvama Research, on the other hand, has reduced its target price to ₹3,000 from ₹3,185, while maintaining a “buy” rating. The brokerage is optimistic about the growth prospects in the international business and the industrial sector, although it, too, has revised its EPS estimates downward due to weak demand in the domestic market.
Source: Business Standard

A Challenging Yet Resilient Outlook

Asian Paints’ Q3 FY25 results have highlighted the challenges faced by the company, including subdued demand, an adverse product mix, and increased competition. While the company has shown strength in its industrial and international businesses, analysts are divided on its near-term growth prospects.

Investors are advised to monitor the evolving demand conditions in the domestic market, especially in urban centers, and keep an eye on how the company navigates the increasing competitive pressures. With varying analyst recommendations and price targets, the stock’s performance will largely depend on the recovery in demand, margin improvement, and its ability to fend off growing competition.

Conclusion

Asian Paints remains one of the leading players in the industry, but the road ahead looks uncertain as it faces multiple headwinds. For now, the stock’s performance will largely depend on how quickly it can adapt to the changing dynamics of the paint industry.

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