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Asian Paints outlook appears optimistic but why are brokerages sounding the alarm bell
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
With the Asian Paints stock down 25% from its peak, brokerage firms are sounding the alarm bells, particularly with the looming threat of Birla Opus, a major disruptor yet to reach its full potential.
Asian Paints, stumbled in its recent quarterly performance, causing its stock to take a 5% hit on Wednesday, May 9. Despite a respectable 10% uptick in volume, the company fell short of expectations across the board, leaving investors and analysts uneasy.
A day after its earnings, the stock gained and was trading 2.3% higher at ₹2,772.50 apiece at 10 am on Thursday, May 10.
As we look ahead to fiscal year 2025, the company’s outlook appears cautiously optimistic, with projected double-digit volume growth for both the first quarter and the year overall.
However, there are clouds on the horizon, including an anticipated 5-6% gap between volume and value, along with a margin range of 18-20%.
With the stock down 25% from its peak, brokerage firms are sounding the alarm bells, particularly with the looming threat of Birla Opus, a major disruptor yet to reach its full potential.
Analysts are urging caution when it comes to Asian Paints, with many suggesting adjustments to their target multiples.
Jefferies, points out the lofty valuations of Asian Paints, sitting at around 50 times earnings. They see increased competition as a wildcard, leading them to dial back earnings estimates and set a new target price of ₹2,200.
Citi’s sell recommendation reflects concerns over declining revenues, attributed to price cuts and a shift towards lower-priced products. With a target price of ₹2,600 per share, Citi highlights the challenges Asian Paints faces in maintaining its market position.
ISEC believes the competitive balance in the paint industry has been disrupted. They foresee a drop in EBITDA margin over the next fiscal years, prompting them to advise a reduction in holdings, with a target price of ₹2450.
Phillip Capital has trimmed EPS estimates for fiscal years 2025-26. With a revised target price of ₹2,950 from ₹3,200, Phillip Capital aims for a more conservative valuation, considering the company’s historical performance and market conditions.
In conclusion, Asian Paints is navigating choppy waters, grappling with a mix of internal and external challenges. While the company’s long-term growth story remains intact, the immediate future is uncertain. Investors are urged to proceed with caution, weighing the recommendations of analysts against the evolving landscape of the paint industry.
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