Asian Paints share price falls over 5% after Q3 results; should you buy, sell or hold?

Asian Paints share price extended fall, declining over 5% in early trade on Thursday, a day after the company reported its earnings for the third quarter of FY24. Asian Paints shares declined 5.3% to ₹3,070.55 apiece on the BSE.

On January 17, Asian Paints shares fell 1.66% after the company reported its Q3 results. Asian Paints posted a net profit of ₹1,475.16 crore for the quarter ended December 2023, registering a growth of 34.4% from ₹1,097.06 crore in the year-ago period. 

The company’s revenue in Q3FY24 increased 5.4% to ₹9,104 crore from ₹8,636.7 crore, YoY. The decorative business grew in luxury and economy segments to register a robust 12% volume growth and a value growth of 5.5%.

Read here: Asian Paints Q3 Results: Net profit rises 34% to ₹1,475 crore, revenue up 5% YoY

At the operating level, the paint manufacturer’s earnings before interest, tax, depreciation, and amortization (EBITDA) rose to ₹2,056 crore from ₹1,611.4 crore, while EBITDA margin improved to 22.6% from 18.7%, YoY.

Here’s what brokerages have to say on Asian Paints Q3 results and Asian Paints shares:

Motilal Oswal Financial Services

Owing to the beat on EBITDA margin, Motilal Oswal Financial Services raised its FY24 estimates by 5% while largely maintaining our FY25 EPS. It remains cautious as the paints segment may not enjoy higher multiples of the past.

The brokerage projects a higher EBITDA margin (21.5% for FY25/FY26) as it anticipates that gross margin would not have a significant impact on the EBITDA margin due to increasing competition. 

“Asian Paints has a superior execution history and should be able to manage the challenges without compromising its large-margin structure. We believe valuations are expensive at ~53xFY25E EPS and 48xFY26E EPS, especially considering the uncertain competitive pressure,” said Motilal Oswal. 

It reiterated a ‘Neutral’ rating with a target price of ₹3,340 per share, based on 50x Dec’25E EPS.

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Kotak Institutional Equities

Kotak Institutional Equities believes Asian Paints’ 5.5% value growth in domestic decorative paints is weak in context of the late festive season, while profitability was marginally ahead of expectations and at the pre-pandemic peak. 

The brokerage remains cautious, given the deceleration in underlying demand and potential impact of Grasim’s launch on industry profitability, likely resulting in negligible FY2024-26E EPS CAGR. It has a ‘Reduce’ rating on the stock and revised target price to ₹3,100 per share, valuing Asian Paints at 50X FY2026E P/E.

Antique Stock Broking

Asian Paints Q3FY24 sales performance was below expectations, while profitability was higher than expected due to benign raw material prices resulting in an earnings beat. Post the Q3FY24 results, we have marginally tweaked our FY25/ 26 estimates by reducing sales growth offset by profitability improvement. In view of the demand challenges and the expected increase in competition, we expect moderation in volume growth momentum in the coming quarters, Antique Stock Broking said. 

It maintained a ‘Hold’ recommendation on the stock with a target price of ₹3,362 per share.

Also Read: HDFC Bank share price extends decline; plunges over 10% in two days after Q3 results

Centrum Broking

Centrum Broking expects Asian Paints to emerge as a strong player, moving from share of surface to share of space inside home in line with its core strategy. It believes the company is a structural growth story, capturing demand across segments and town class. 

Considering higher profitability, the brokerage firm increased earnings estimates for FY24E and FY25E by 13.4% and 6.5%. It retained a ‘Buy’ call and raised target price to ₹3,820 per share from ₹3,730 earlier. Key risks to its call include weak demand conditions, rise in crude oil prices and rising competition.

Prabhudas Lilladher

The brokerage firm cut FY25/26 EPS estimates by 1.2%/1.4% given little scope to improve margins on expected increase in competitive activity with Grasim’s entry despite sustained double digit volume growth expectations. 

The brokerage expects stunted growth in the medium term given near peak EBITDA margins, likelihood of price cuts and entry of Grasim in decorative paints. It believes valuations at 52.5xFY26 EPS don’t factor in slowdown in profit growth and increase in competitive intensity fully.  

It downgraded the stock to ‘Hold’ from ‘Accumulate’ and cut the target price to ₹3,159 per share from ₹3,466 earlier and said it would avoid fresh entry at current prices.

At 10:10 am, Asian Paints shares were trading 2.96% lower at ₹3,146.35 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.