Asian Paints' shares dropped more than 9% on 11 November. Brokerages are worried about the company's Q2 FY25 results, which show weaker demand and more competition.
By 9:20 AM, the stock was trading over 7% lower at ₹2,565, marking a substantial year-to-date loss of nearly 25% against the Nifty 50's 10% gain in the same period. This significant fall has left investors wary about future share market investment opportunities in the company.
Brokerages downgrade Asian Paints following an operating miss
Among the most vocal responses was JPMorgan's downgrade of Asian Paints to an 'Underweight' rating, slashing the target price from ₹2,800 to ₹2,400. This downgrade was attributed to a substantial operating miss, with the profit-before-depreciation, interest, and tax (PBDIT) margin falling to 15.5% in Q2FY25 from 20.3% in the previous year.
CEO Amit Syngle noted that operating margins were impacted by last year's price reductions, higher material prices, and increased sales expenses. For those interested in share market investment, the company's cost challenges signal potential volatility ahead.
Revenue and profit figures fall short of expectations
The company reported a 5.3% year-on-year decline in Q2FY25 revenue, amounting to ₹8,003 crore. Consolidated net profit saw a sharp drop, plummeting 42.4% to ₹694.64 crore, well below the expected ₹1,205 crore. These figures underscore the impact of ongoing challenges on Asian Paints' performance, raising questions for those considering share market investment in the stock.
Nomura and other brokerages take a cautious stance
Nomura adjusted its rating to 'Neutral' and lowered its target price from ₹2,850 to ₹2,500. In their analysis, Nomura pointed out that while other players improved their product mix by limiting lower-value items like putty, distemper, and primer, Asian Paints continued to see a lower mix. While demand in rural areas may boost volumes in the second half of FY25, Nomura cautioned that overall sales and EBITDA are expected to remain stagnant, impacting share market investment sentiment.
Morgan Stanley and Jefferies also issued cautionary ratings, with Morgan Stanley marking Asian Paints as 'Underweight' and Jefferies rating it 'Underperform.' Morgan Stanley cited adverse weather and demand challenges, while Jefferies highlighted the company's broad-based underperformance and intensified competition in the industry.
Market outlook and implications for share market investment
For investors considering share market investment, Asian Paints' disappointing Q2FY25 performance and cautious outlook from leading brokerages signal potential risks. The company's recent struggles with pricing, competition, and operating margins raise concerns about its near-term stability. As Asian Paints works to navigate a challenging market, those with share market interests in the stock may need to assess these trends carefully.
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