Q2 results impact: Brokerages see Asian Paints' margin under pressure in FY27

At around 12.55 pm on BSE, the stock was trading 0.80 percent higher at Rs 2,317. Asian Paints Ltd reported a 7.5 percent YoY increase in consolidated net profit at Rs 1,067.6 crore for the September quarter of FY27, as strong sales growth across domestic coatings and international markets was partly offset by rising raw material costs and pressure on operating margins. Consolidated net sales rose 16.9 per cent to Rs 9,953.9 crore in the quarter ended September 30.

However, operating profitability remained under pressure. Profit before depreciation, interest, tax and other income (PBDIT) increased 3.6 per cent to Rs 1,557.1 crore. The PBDIT margin contracted to 15.6 per cent from 17.7 per cent a year earlier, reflecting the impact of sharp raw material inflation and supply constraints linked to geopolitical disruptions. The company said it absorbed part of the cost increases to protect consumer demand while implementing calibrated price hikes.

Asian Paints' domestic coatings business recorded value growth of 16.4 percent, supported by volume growth of 6.8 per cent. Its decorative paints business in India posted value growth of 14.5 percent and volume growth of 6.4 percent, while industrial coatings continued to outperform, with value growth of 31.8 percent. International business sales increased 29.5 percent to Rs 1,095.6 crore, or 23.7 per cent in constant-currency terms, with growth across all regions.

However, segment profit before tax fell 31 per cent to Rs 52.7 crore, highlighting the uneven translation of sales growth into profitability. The company also reported progress in its home decor businesses. Bath fittings revenue rose 18.5 per cent to Rs 94 crore, with the segment returning to a pretax profit of Rs 8.7 crore from a loss a year earlier. Kitchen revenue increased 13 per cent to Rs 110.3 crore, although its pretax loss widened to Rs 7.9 crore.

The company's standalone net profit rose 14.6 percent to Rs 1,095.6 crore, while standalone revenue increased 14.8 percent to Rs 8,423.6 crore. Its standalone PBDIT margin narrowed to 17.1 percent from 18.5 per cent a year earlier. For the first half of FY27, consolidated net sales rose 17.4 percent to Rs 20,475.3 crore and net profit after minority interest increased 24.5 per cent to Rs 2,606.9 crore.

The consolidated PBDIT margin improved to 18.2 per cent from 17.9 per cent in the year-earlier period, indicating stronger first-half profitability despite the margin compression in the latest quarter. Brokerages on Asian Paints share price: 7 brokerages cut target prices Brokerages expressed mixed outlook on Asian Paints after the quarterly results, with concerns over input cost inflation, competitive intensity and the pace of margin recovery weighing on valuations.

While some analysts expect calibrated price hikes and backward integration to support profitability in the coming quarters, others remain cautious about the paint maker’s ability to fully pass on higher costs. 1. HSBC on Asian Paints share: Hold, Target Price cut to Rs 2,420 Brokerage HSBC retained its ‘Hold’ recommendation on Asian Paints but cut target price to Rs 2,420, citing the second-quarter profitability weakened due to an adverse product mix, seasonality and destocking.

It added that competition and high input inflation continue to delay margin recovery, although the company’s focus on premiumisation remains positive. However, it highlighted concerns over industry growth and competitive dynamics. 2. CLSA on Asian Paints share: Underperform, Target price at Rs 1,925 CLSA maintained its ‘Underperform’ rating with a target price of Rs 1,925 per share. The brokerage noted that Q2 consolidated revenue grew 16.5 percent which was broadly in line with expectations.

But gross margin contracted 347 basis points year-on-year as price hikes did not fully offset input cost inflation. CLSA also highlighted that competitive intensity could limit further pricing actions to protect affordability. EBITDA margin declined around 201 basis points year-on-year on higher costs and adverse mic, while the company retained its FY27 volume growth guidance of 8-10 percent. 3. Jefferies on Asian Paints share: Buy, Target price cut to Rs 3,025

Global brokerage firm Jefferies retained its ‘Buy’ recommendation on Asian Paints but reduced its target price to Rs 3,025 per share. The brokerage said revenue growth remained strong, led by price hikes, although intense competition and pricing below the pace of cost inflation weighed on margins. However, it said festive shift temporarily affected volumes. Jefferies expects a better product mix, festive demand and calibrated price hikes to support a recovery in the second half of FY27.

However, raw material price volatility remains a key risk, while backward integration could offer medium-term margin benefits. 4. JM Financial on Asian Paints: Add, Target price Rs 2,595 JM Financial retained its ‘Add’ recommendation but reduced its target price to Rs 2,595 from Rs 2,930 earlier. It acknowledged that revenue was around 2 percent ahead of forecasts forecasts due to higher pricing growth.

However, weaker-than-estimated gross margins due to raw material inflation and a seasonally weaker mix led to EBITDA miss of 6–7 percent against its estimates and consensus expectations. The brokerage noted that domestic decorative paints sales grow 14,5 percent and volumes grew 6.4 percent in the quarter, while first-half FY27 volume growth stood at 8 percent, demonstrating resilience despite 12 percent price increases.

Going ahead, the brokerage stated the management remains optimistic about volume trajectory (guided for 8–9% growth) and mix improving in seasonally strong H2FY27. Raw material scenario remains challenging (anti-dumping duty on TiO2). “That said, with calibrated price hikes (further ~6% hike effecting November 26 as per our checks), improving mix and benefit of backward integration, the company expects gross margins to be in the range of 41–43% and EBITDA margin to be in the guided range of 18–20%,” it added.

JM Financial also highlighted that Asian Paints’ stock had corrected around 16 percent over the past three months, with valuations falling below long-term averages. It said a sustained acceleration in industry demand and the pace of margin recovery would remain key factors to monitor. 5. Prabhudas Lilladher on Asian Paints share: Hold, Target price Rs 2,544 Prabhudas Lilladher retained its ‘Hold’ rating with a target price of Rs 2,544, citing “double-digit" earnings growth is likely to continue, driven by strong sales and benefits of price hikes.

Competition is expected to remain high due to players like Birla Opus, JSW Akzo, and JK Cement expanding their distribution and product range, Prabhudas Lilladher said. However, it cautioned that margins are expected to be volatile as crude oil prices remain high. Benefits from the company's vinyl acetate ethylene emulsion manufacturing facility at Dahej, Gujarat will be key for an earnings upgrade, the brokerage said.

6. Systematix Shares and Stocks (India): Buy, Target price cut to Rs 2,885 Systematix Shares and Stocks maintained its ‘Buy’ rating but cut its target price to Rs 2,885 from Rs 3,285. The brokerage expects volumes to grow 8-10 percent over FY27-FY29 as demand within the industry remains strong. The November price hiked lift the outlook for realisations though raw material costs remain a concern. The brokerage expects gross profit margin to contract in the second half of FY27 and operating profit margin is expected to be mostly flat on a yearly basis.

Factoring in benefits from the Dahej facility, Systematix upped its expectations for the company's EBITDA margin by 95 basis points for FY28 to 20.4% and by 181 bps to 22.1% for FY29. Equirus Securities on Asian Paints share: Long, Target price cut to Rs 2,967 Equirus Securities maintained its "long" stance on the stock while trimming its target price to Rs 2,967 from Rs 3,212 earlier. While demand recovery and cost differentiation from vinyl acetate ethylene emulsion facility are important positives for the company, pricing pass-through remains key to recovery in margins, Equirus Securities said.

Margin for FY27-29 is expected to be within the range of what the company guided but FY27 margin are seen at the lower end, owing to cost pressures. Gradual margin recovery is likely to follow from FY28 onwards, Equirus said. "We expect any cost savings to be spent in promotions and marketing-led incentives to fuel higher growth," according to the brokerage.