Asian Paints Ltd’s shares fell around 5% on Wednesday after the company announced its earnings for the December quarter (Q3FY26). Though profit margins were a bright spot, the company failed to sustain its 10.9% growth in domestic decorative paint volume from Q2, which came after five quarters of lucklustre growth.
Domestic decorative paint volume, Asian Paints’s backbone, grew 7.9% year-on-year in Q3, with value growth at 2.8%. A shorter festive period (just 15 days) and a prolonged monsoon in October played spoilsport. Consolidated revenue grew just 3.7% year-on-year to ₹₹8,867 crore.
Management said in the earnings call that volumes in November and December were significantly stronger than the quarterly average, suggesting an improving trend towards the end of Q3. Near-term volume growth is seen at 8-10%, aided by steady demand from both the consumer and industrial segments.
That said, management highlighted changes in consumption patterns such as the growing number of destination weddings leading to postponement of home paintings in the wedding season, and less frequent painting in general as consumers shift to other discretionary spends. These are likely leading to weak industry sales growth compared to the healthy double-digit growth of the past.
Asian Paints’ volume-value gap of 4-5% is likely to persist because of an unfavorable product mix (higher growth is likely in putty, construction chemicals and waterproofing products). This could limit overall revenue growth to the mid-single-digits.
Gross margin and EBITDA margin both hit multi-quarter highs in Q3. Gross margin at 44.4% was aided by lower raw material costs and a larger share of premium products. Ebitda margin surpassed 20% for the first time in eight quarters. Asian Paints retained its EBITDA margin guidance of 18-20%, supported by continued cost efficiencies, stable input prices, and benefits expected from backward integration projects over the medium-term.
Nomura Global Markets Research analysts said the company could see operating margin remain at the higher-end of the guided band. However, its near-term guidance of mid-single-digit value growth and double-digit volume growth may not excite the Street, said the Nomura report dated 27 January. Factoring in the guidance, Nomura cut its FY27 and FY28 earnings per share estimates by 2.4% and 0.2%, respectively.
What’s the gameplan?
Asian Paints will continue to invest in marketing and strengthen brand equity as it expects competition to remain elevated. It currently does not foresee price changes, but is confident of market-share gains through innovation. It continues to expand its distribution reach, having added 3,500-4,000 retailers over 9MFY26 with more than 160,000 retail touchpoints.
It is also looking to benefit from premiumization, with new product launches focused on the margin-accretive premium and luxury segments, management said, adding that the earnings impact of these measures would show up gradually. A lot will also depend on the pace of demand revival at the industry level and how competition, especially from Birla Opus, pans out.
The stock is down 16% from its 52-week high of ₹2,985 in December, and trades at 49 times estimated FY27 earnings, as per Bloomberg. The stock is pricey, given the low growth expectations, despite Asian Paints’ distribution muscle and brand salience. “Despite recent tax cuts, benign inflation and incremental gains in disposable income, paint demand has remained subdued, indicating structural softness, while intensifying competition is preventing any meaningful recovery for Asian Paints,” said a PL Capital report dated 27 January.
