Asian Paints Reports Q2 Miss, but Brighter Prospects Await in Q3 As Per Brokerages Reports

In the latest financial report, Asian Paints has shown subdued revenue growth for Q2 FY24, missing market expectations. However, experts remain hopeful, anticipating a more robust performance in the October-December quarter.

The lackluster revenue growth in Q2 can be attributed to a delayed festive season and erratic monsoon, which adversely affected consumer demand. Additionally, the second quarter typically represents a weaker period for paint manufacturers.

As of 9:22 AM, Asian Paints shares were trading approximately 1% lower at Rs 2,936.20 on the NSE.

Nonetheless, Asian Paints is poised to benefit from the delayed festive season in Q3. Prominent brokerages, including Morgan Stanley, Nuvama Institutional Equities, Motilal Oswal Financial Services, and HSBC, are all predicting a significant rebound in volumes and revenue growth for the company in Q3.

Despite ongoing concerns about rising crude oil prices and the impending entry of Grasim into the paints business, optimism persists. Management’s positive outlook for an extended festival season, coupled with expectations of increased rural growth in H2 FY24, driven by expectations of a bountiful harvest and an improving economy due to government spending, is boosting confidence, as reported by MOFSL.

A Brighter Future

Brokerage firm Jefferies maintains an ‘underperform’ rating on Asian Paints with a price target of Rs 2,500. However, they are optimistic about the management’s confidence and believe that the shift in the season during Q3 could result in double-digit volume growth for the paint manufacturer.

The management has also indicated double-digit volume growth for Q3 and FY24, along with the anticipation of a pickup in rural demand in the upcoming quarters.

In line with this positive outlook, Morgan Stanley also expects robust growth in Q3, despite the delay in the festive season. The firm has an ‘underweight’ rating on Asian Paints with a price target of Rs 2,702.

Conversely, HSBC is impressed by Asian Paints’ margin expansion and foresees it continuing on an upward trajectory. The brokerage supports the expectations of a rebound in volume growth in Q3.

“The outlook for the second half of FY24 remains strong, and the valuations for Asian Paints also appear attractive,” the firm stated in a note. HSBC has a ‘buy’ rating on the stock with a bullish price target of Rs 4,000.

Persistent Crude Concerns

The rise in crude oil prices due to escalating geopolitical tensions in the Middle East is a major concern for most brokerages, as the company had been benefiting from lower raw material costs.

Nuvama, which has a ‘buy’ rating on the stock with a target price of Rs 3,505, also identifies an increase in raw material prices stemming from geopolitical issues and a lag in rural recovery as significant downside risks for Asian Paints.

“Looking ahead, there is an expectation of potential upward movement in input costs. This is influenced by larger geopolitical factors and currency fluctuations, particularly expecting an upswing in material prices, especially those derived from crude,” MOFSL mentioned in its report. The firm has a ‘neutral’ rating for Asian Paints with a price target of Rs 3,100.

Additionally, Jefferies highlighted that Grasim’s entry into the paints business is only six months away, adding to the uncertainty for Asian Paints.