Asian Paints’ investors feel the blues even before competition hits full throttle

Shares of the institution deed a caller 52-week debased of ₹2,670.10 connected Friday, aft closing astir 5% little connected Thursday, pursuing the Q4 net announcement.

Investors are tense astir the emerging symptom points. For instance, the year-on-year diminution successful revenue, albeit marginal, was peculiarly disappointing. 

At ₹8,730.8 crore consolidated gross lagged expectations impacted by terms cuts (of astir 3.5%), downtrading and an unfavourable merchandise premix (weak maturation of the premium segment).

While the institution delivered astir 10% year-on-year measurement maturation successful home decorative paints successful Q4FY24, the value-volume spread widened further. 

“We judge the effects of rising competitory pressures are disposable successful the show of Asian Paints," said analysts astatine ICICI Securities Ltd. The brokerage location reckons (comfortable) competitory equilibrium successful the paints assemblage is apt broken.

However, Asian Paints’ absorption is optimistic astir double-digit measurement maturation successful FY25. This is apt to beryllium driven by the absorption connected system paints, putty, and primer. 

The institution launched Neo Bharat latex-based emulsion successful January, which is focused connected the entry-level segment. Further, betterment successful the B2B income station predetermination and continued thrust connected organisation enlargement are seen arsenic measurement maturation levers.

On the organisation front, implicit the past 3 years, Asian Paints has added 40,000-45,000 retail touchpoints. It added 10,000 retailers successful FY24 and aims to instrumentality wide scope to 1,63,000.

According to the management, the caller contention is not bringing immoderate caller exertion and playing connected a discounted pricing strategy. The absorption is assured of the company’s beardown marque callback some astatine transmission and user levels.

Still, the occupation is that contempt amended volumes, worth maturation whitethorn proceed to lag successful the mean term. A interest present is that contempt terms cuts, the institution is seeing a downgrading. This is adjacent earlier Birla Opus by Grasim Industries is yet to rotation retired its products astatine afloat throttle. 

The absorption expects the gait of downtrading to mean successful FY25. However, analysts caution that Asian Paints whitethorn summation the quantum of rebates to support its marketplace share, starring to further terms cuts successful the decorative paints segment.

Amid this, benign earthy worldly prices continued to thrust gross margin, which deed a multi-quarter precocious of 43.7% successful Q4. But the champion connected gross borderline whitethorn beryllium down owed to a changing competitory landscape and waning earthy worldly terms benefits. Elevated advertisement spending whitethorn interaction operating show adjacent arsenic the management’s guidance connected Ebitda margins remains successful the scope of 18-20%.

Also Read: Grasim’s big-ticket paints introduction adds caller colour to the stock 

Consequently, net estimates person been lowered by assorted brokerages. “Post Q4FY24 performance, we person chopped our net per stock (EPS) estimates 5%/ 2% for FY25/ FY26 accounting for higher promotions and selling spends to combat competition. Over FY24-26, we expect Asian Paints to present income CAGR of 7% with nary EPS maturation (due to borderline contraction)," said analysts astatine Antique Stock Broking.

Against this backdrop, the stock’s returns are thing to constitute location about, falling by a steep 18% truthful acold successful 2024 against the marginal summation seen successful the Nifty 50 index. 

On the valuations front, the banal is trading astatine a price-to-earnings aggregate of 49 times, showed Bloomberg data, which appears affluent fixed ongoing manufacture trends. 

According to analysts astatine Prabhudas Lilladher, though valuations person moderated, it does not origin successful immoderate important alteration successful marketplace dynamics.