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Asian Paints Shares Extend Fall On Q2 Miss, Analysts Turn Cautious


Shares of Asian Paints Ltd. extended losses on Friday after second-quarter profit missed estimates and analysts turned cautious.

India’s largest paintmaker’s net profit rose 31% to Rs 782.71 crore in the July-September period, according to its exchange filing. The price hikes were not enough to offset the extended monsoon and higher input costs.

Sequentially, however, its net profit fell 23% from Rs 1,016.93 crore.

Key Highlights (YoY)

  • Revenue rose 19% to Rs 8,457.6 crore, against an estimated Rs 8,906.2 crore.

  • Operating profit rose 36% to Rs 1,227.7 crore. Analysts had pegged it at Rs 1,574.1 crore.

  • Margin expanded to 14.5% from 12.7%. On a sequential basis, it contracted due to the consumption of high-priced material inventory. Analysts had pegged the metric at 17.7%.

  • Gross margins slipped 200 basis points to 35.7% sequentially.

  • Operating margins contracted by 356 basis points over the previous quarter led by low gross margins, increase in staff costs and other expenses.

  • Domestic decorative paint volume grow 10% year-on-year despite subdued demand for exterior paints in July-August.

  • Rural outpaced urban in terms of demand. The company saw product mix deterioration as consumers downtraded from luxury range to the economy.

  • The management expects gross margins to reach 39-40% in the fourth quarter of FY23 led by a correction in input costs as well as price hikes.

Analysts, however, are betting on Asian Paints’ planned investment in backward integration of white cements and vinyl acetate ethylene emulsion (VAE) and vinyl acetate monomer (VAM) production, which will reduce import dependency, enhance margins and get aggressive in adhesives.

The company expects demand in Q3 and Q4 to improve with an uptick in consumer sentiments during the festive season and upcoming wedding season. An uncertain geopolitical environment and the strengthening of the dollar, however, could play spoilsport.

Shares of Asian Paints were trading 1.01% lower as of 10.59 a.m. on Friday, while the Nifty 50 gained 0.37% on the NSE.

Of the 41 analysts tracking the company, 18 maintain a ‘buy’, 12 suggest a ‘hold’ and 11 recommend a ‘sell’, according to Bloomberg data. The average of the 12-month target price implies an upside of 6%.


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