Asian Paints Q2 Analysis: 16.4% EBITDA Amid 6.7% Revenue Decline

Executive Summary

Asian Paints Ltd., India’s largest and most iconic paint manufacturer, faces short-term challenges from muted consumer demand, margin pressures due to input cost inflation, and competitive intensity. However, its strong brand equity, strategic expansions, focus on innovation, and diversified product portfolio position it for sustainable long-term growth. The company’s ongoing backward integration and new growth verticals in home décor further solidify its trajectory as a market leader.

Financial Performance Highlights (Q2 FY2025)

Revenue: ₹8,256 Cr. (down 6.7% YoY)

EBITDA Margin: 16.4% (↓ 530 bps YoY)

PAT: ₹4,698 Cr. (down 7.52% YoY)

Gross Margin: ↓ 280 bps YoY due to inflationary pressures

H1 FY2025 Performance

Volume Growth: 3.3%

Value Decline: 4.8%

EBITDA Margin: 18.5%

Key Strategic Insights and Growth Drivers

1. Product Innovation and Portfolio Expansion

New Launches:

NeoBharat Range: Targeted at the bottom-of-the-pyramid segment
Ultima Protek: Incorporates cutting-edge graphene technology
Chroma Cosm: World’s largest color repository with 5,300 shades

Revenue Contribution from New Products: 12% of total revenue

2. Focus on Backward Integration

Dahej Plant (VAM-VAE): Reducing dependency on raw material imports
White Cement Unit (Fujairah): Supports diversification into high-margin products

3. Rural and Urban Penetration

Expanded retail touchpoints to 1.67 lakh outlets, with significant growth in Tier 3/4 towns and rural regions.

4. Leadership in Home Décor

Kitchen Segment: 9% growth in Q2 FY2025

Bath Segment: 6% H1 growth

5. Industrial Business Performance

Segment Contribution: 6-7% of total revenue

Q2 Growth: ~6%

H1 Growth: ~8%

Competitive Landscape and Market Dynamics

Competitive Pressure

Berger Paints gaining market share with rural focus

New entrants offering competitive dealer margins

Market Share Insights

Leadership position maintained despite challenges

Industrial segment contribution at ~6% vs competitors’ 20%-45%

Valuation Analysis

Current Metrics

P/E Ratio: 47.4x

ROE: 31.4%

ROCE: 37.5%

Dividend Yield: 1.43%

DCF Valuation Assumptions

Volume growth: 8%-10% CAGR (5-year forecast)
EBITDA margin: 18%-20% post-H2 FY2025
WACC: 11%
Terminal growth rate: 4%

Inherent Risks

1. Macroeconomic Risks

Prolonged consumer demand weakness
Rural spending volatility

2. Raw Material Costs

Crude oil derivatives dependency
Geopolitical impact on input costs

3. International Operations

Forex losses (₹56 Cr. in Ethiopia)
Performance concerns in key markets

Investment Recommendation

Rating: Hold

Target Price: ₹2,700–₹2,950

Potential Upside: 16%-27% from current levels

Asian Paints offers a robust long-term growth story backed by innovation, market leadership, and diversification. However, near-term pressures from weak demand, rising competition, and margin contraction warrant a cautious stance.

Asian Paints Ltd.