Brokerages cut Asian Paints' targets, see limited upside

Mumbai: Analysts across domestic and foreign brokerages slashed their price targets on Asian Paints after its December quarter earnings fell short of expectations, causing the shares to slide to their lowest levels since early July.

The Asian Paints stock closed at ₹2,784.9 on the NSE on Friday, down 2.83% from the previous close. Nearly 34 lakh shares exchanged hands on the BSE and NSE on Friday, over three times its combined average daily volume in the last one month.

Analysts at Goldman Sachs, CLSA, JPMorgan, Morgan Stanley, and Investec cut their price targets owing to a grim outlook.

Despite a correction in raw material prices, the company maintained its gross margin guidance at 38-40%, indicating cut in product prices and higher dealer incentives to keep competition at bay, said Investec in a client note. "Near term outlook, thus, looks clouded. From a long-term perspective, we stay concerned on intensifying competition. JSW Paints is already seeing customer and dealer acceptance," the brokerage said.

Of the 29 analysts that reviewed the third quarter earnings, nine of them maintained their buy ratings, while 13 remained neutral and seven have a sell rating, showed a Bloomberg poll of analysts.

On aggregate, analysts trimmed their price targets by 5.5% to ₹3,138 per share.

ICICI Securities slashed its target price and said that lower-than-expected urban recovery and potential execution challenges in new categories are some of the many triggers that could lead to a structural correction in its high earnings multiple.

The stock has lost nearly 10% in the last one month as rising competition and expensive valuations remain a cause of concern for investors.

Jefferies retained its price target but trimmed FY23-25 revenue estimates by 4-5% citing a drop in volumes. It told investors that Grasim's foray into the paints business was one key event to monitor.

"Asian Paints remains a strong play in the Indian paint industry. It has demonstrated a strong track record, delivering 15% revenue CAGR and 20% EPS CAGR over the past 15 years, and it has remained the market leader for over half a century. However, 61x FY24 P/E already captures this," the brokerage said.