After the Q2 results, Asian Paints' share price falls by about 1%; should you buy, sell, or retain the stock?

 After the Q2 results, Asian Paints' share price falls by about 1%; should you buy, sell, or retain the stock?

The share price of Asian Paints saw a decline of around 1% during the early trading hours on Friday, October 27, on the BSE. This occurred one day after the firm revealed a 5% YoY increase in its consolidated net profit for Q2FY24, while reporting a flat sales growth. 

Following the Q2 results on Thursday, October 26, the stock finished 3.36 percent down.

Friday morning at 9:30 am, the stock was trading 0.45% down on the BSE at ₹2,945 in the market.

Despite flat sales growth, Asian Paints, the biggest paint manufacturer in India, posted a consolidated net profit of ₹1,205.4 crore for the period ending September, up 54% from ₹782.7 crore a year earlier, as reported by Mint.

During the reviewed quarter, its income increased by a meager 0.3% to ₹8,478.57 crore. This was mainly because of weak demand, a delayed festival season, and irregular monsoon rains.

The share price of Asian Paints has not done well during the last year. The stock has decreased by almost 3% over the last year, although the Sensex, a benchmark for equities markets, has increased by roughly 6% over the same period.

The share price of Asian Paints reached ₹3,566.90, its 52-week high, on July 24, 2023, and ₹2,686.15, its 52-week low, on January 27, 2023. The stock has decreased by almost 17% from its 52-week high as of the most recent trading price.

Let's examine the opinions of leading brokerage companies about the stock after the September quarter results:

Wealth Management Nuvama

The target price for Nuvama's buy call on the stock was reduced from 4,045 to 3,505.

Nuvama has lowered its multiple from 60 times to 55 times and lowered its projections for FY25 and FY26 EPS (earnings per share) by 5.5% and 5.6%, respectively, in light of a respectable Q2FY24.

Given the geopolitical concerns, Nuvama sees a surge in raw material costs as a major danger, even if the rural sector hasn't completely recovered.

The Financial Services of Motilal Oswal

Motilal Oswal has a target price of ₹3,100 and views the stock as "neutral."

"Changes to our model have discovered in a 3.1 per cent and 0.6 per cent fall in our EPS forecast for FY24 and FY25 respectively," Motilal Oswal said.

The management emphasized how unpredictable rains negatively affects demand. Furthermore, Motilal Oswal said that the margin increases in the second half of the financial year (H2FY24) are not anticipated to replicate those in the first half (H1FY24) due to rising input costs.

"Given that the paints segment might not see the higher multiples of the past, we remain cautious." It should be noted that Asian Paints' stock price growth over the previous five to six years was more driven by re-rating than by profits growth, which has been in the 10 to 12 percent area, according to Motilal Oswal.

"We have projected EBITDA margins for FY24 and FY25 that are at the upper range of management's expectations. New capital expenditure plans may dilute ROCE (return on capital employed), even when higher margins would result in a superior ROCE. Although we have chosen a higher EBITDA and PAT CAGR trajectory for FY23–FY25—18.5 percent and 18.7 percent, respectively—than the previous

The values are high at about 54 times FY24E EPS and 48 times FY25 EPS, with a 10-year average in the 13–14% area, according to Motilal Oswal.

Anjali Bang

Nirmal Bang has issued a 'accumulate' call with a ₹3,290 target price on the stock.

According to Nirmal Bang, Asian Paints' Q2FY24 results showed lower-than-expected results across the board, missing 3.6% in sales, 11.3% in EBITDA, and 6.5% in PAT.

"While volume creation of 6 per cent was marginally below the forecast of 8 per cent growth there was a significantly poorer mix than expected as a result of downtrading," said Nirmal Bang.

"While the management retained its FY24 EBITDA margin guidance at 18-20 per cent owing to some recent inflation in crude-related costs, we believe that the company is being conservative therefore is likely to exceed the guidance," Nirmal Bang said.

But any significant escalation in competition at the close of FY24 may jeopardize our FY25 profits. With a target price of ₹3,290, we continue our 'accumulate' strategy due to the stock's rich valuations of about 48 times FY25E EPS, which values the company at 50 times September 2025E EPS, according to Nirmal Bang.