Asian Paints faces near-term headwinds as weak Q3 dampens sentiment

Synopsis

Asian Paints stock dropped after a weak December quarter. Softening demand, extended monsoon, and competition impacted sentiment. The company expects market share gains in waterproofing and home decor. Despite slower decorative volume growth, margins expanded due to lower raw material costs. Brokerages have trimmed earnings estimates. Cost savings and new products will support profitability as demand recovery remains gradual.

ET Intelligence Group: Asian Paints has lost 10% on bourses since January 27 after a lacklustre December-quarter performance rekindled worries over softening demand. The rebound in sentiment seen after the September-quarter, driven by hopes of GST-led price relief and festive-season traction has faded with an extended monsoon, a shorter festive period and intensifying competition weighing on the near-term outlook. Though the paint major expects competitive pressure to remain intense in the short term, it has retained the FY26 guidance of 8-10% volume growth and 18-20% operating margin before depreciation and amortisation (Ebitda margin), supported by formulation and sourcing efficiencies. It also expects to gain market share over the next 12-18 months driven by waterproofing and home decor segments.

Decorative volumes grew at a slower pace of 8% in the December-quarter compared with 11% growth in the previous quarter, indicating lack of traction in the repainting activity. The international business revenue increased 6.3% due to steady performance in key markets. With loss-making Indonesia business now out of the portfolio and lower raw material costs, the company expects steady but measured progress from offshore units.

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on the wall Co retains FY26 volume growth guidance of 8–10% despite higher competition

A shift by consumers in discretionary spending towards travel and hospitality has resulted in lesser frequency of repainting. However, the rise in luxury and premium housing continues to show better growth at the higher end of the market, boosting demand for waterproofing solutions and construction chemicals.

Despite soft demand, Ebitda margin expanded by 90 basis points year-on-year to 20.1%, led by lower raw-material costs. Amid a cautious demand outlook, the company expects 5% value growth for FY26, which lags its near double-digit volume growth estimates. That suggests a subdued pricing growth.

The home decor segment showed early signs of stabilisation with narrowing losses in the kitchen fittings segment and the bath segment inching towards breakeven. The decorative retail division remained under pressure, but commercial (B2B) and projects businesses continued to outpace the rest of the portfolio, driven by orders from factories and government clients.

Since growth has not picked up as expected, the brokerages have trimmed earnings estimates for the company by 1-3% for FY26-28 and cut target price by upto 10%. While margins remain strong, the slower-than-anticipated growth in the core decorative business has lowered expectations for the rest of the financial year. Asian Paints continues to rely on cost savings, new product launches and steady performance in some non-paint categories to support profitability as demand recovery remains gradual.

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