Asian Paints Ltd is caught in a double whammy of weak demand and increased competition from new and existing companies. This severely hurt the paint maker’s crucial decorative paints business and FY25 ended up being one of its worst years in a long time.
Consolidated net profit after minority interest at ₹3,667 crore in FY25 was down by one-third from FY24. Lower revenues with volume growth at 2.5% in the domestic decorative business, coupled with higher staff costs and other expenses, took a toll on profitability. Asian Paints’ total operating revenue declined year-on-year in each quarter of FY25, leading to an overall 4.5% drop in full-year revenue. FY25 Ebitda margin shrank 365 basis points to 17.7%.
Volume growth for the three months ended March (Q4FY25) came in at just 1.8%, marking a third straight quarter of subdued performance. Demand in urban areas continued to be soft and there was downtrading to lower-price paints, leading to an adverse sales mix.
In the earnings call last week, Asian Paints’ management said the decorative paint sector declined in FY25 owing to factors such as slowdown in new constructions, delays in repainting, and weakness in the business-to-business segment.
For Asian Paints, the management projected single-digit value growth in the domestic decorative paints segment for FY26 and consolidated Ebitda margin growth of 18-20%.
Asian Paints sees demand conditions improving in Q1FY26, especially in urban centres. A normal monsoon forecast coupled with continued support from government spending should aid rural demand trends, the company said in its presentation.
Still, achieving FY26 targets will not be easy. The fear is that new companies with sizable investment commitments can drive shifts in market share and cost structures across the industry.
“With single digit revenue growth, there is a possibility of market share loss for Asian Paints in FY26, in our view,” ICICI Securities’ analysts said. They believe Grasim Industries Ltd is likely to materially grow at a faster pace with the commencement of its Mahad (Maharashtra) and Kharagpur (West Bengal) plants.
Also, “Berger (Paints) and Akzo (Nobel) have been steadily gaining market shares. We also note the smaller/regional players are growing at a faster pace than the industry,” the ICICI Securities analysts said in a report on 9 May.
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Weak outlook
On the margin front, a correction in crude oil prices should offer comfort for Asian Paints. There are risks, however. For instance, to fight competition, Asian Paints may have to raise its selling expenses such as advertising, trade incentives.
Against this backdrop, it’s hardly surprising that the company’s shares are down by about 15% over the past year vis-à-vis the 12% rise in the benchmark Nifty 50 index.
A significant reversal in the trend in the near-to-medium term appears tough given the uncertainty on the timeline of growth recovery.
Factoring the cautious business atmosphere, analysts have slashed their earnings estimates for FY26 and FY27. Kotak Institutional Equities has trimmed its revenue forecast for Asian Paints in view of weak macro conditions and cut its FY26-27 earnings per share estimate for the company by 3-6%.
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Even after lagging behind rivals over the past year, the Asian Paints stock trades at nearly 51 times estimated earnings for FY26, showed Bloomberg data.
Hereon, the Street would track Asian Paints’ strategy on pricing and incentives closely. Investors will welcome signs of sustainable improvement in growth and margins, but until then, the stock’s underperformance is likely to persist.
Kotak Institutional Equities summed it up aptly: “While the earnings downgrade cycle may be nearing its end, the outlook remains markedly weak, and valuations are still too rich to justify a constructive stance.”
In short, Asian Paints’ valuations will be put to test in FY26.
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