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Geojit Financial Services has upgraded Asian Paints to a 'BUY' rating with a target price of Rs. 3,244. The upgrade follows a strong Q2FY26 performance, marked by 10.9% volume growth driven by festive demand and expansion. Despite higher marketing spend, EBITDA margins improved due to lower raw material costs and backward integration. The outlook remains positive, with mid-single digit volume growth expected for FY26.
Geojit Financial Services has initiated coverage on Asian Paints Ltd. with a 'BUY' recommendation and a revised target price of Rs. 3,244. The brokerage house upgraded its rating from 'HOLD' based on the company's robust performance in Q2FY26 and a positive outlook.
In the second quarter of fiscal year 2026, Asian Paints reported an impressive volume growth of 10.9%. This growth was fueled by early festive season demand, increased brand spending, successful product regionalization efforts, and the expansion of its business-to-business (B2B) network. Despite a significant increase in marketing expenditure, the company managed to improve its EBITDA margin by 242 basis points year-on-year. This margin improvement was primarily attributed to a deflationary trend in raw material (RM) prices, which saw a decrease of approximately 1.6%, alongside benefits from backward integration and a favourable shift in product mix.
The management has maintained its EBITDA margin guidance for FY26 in the range of 18-20%. This projection is based on expectations of mid-single digit volume growth and a revival in overall demand. Factors such as a robust wedding season and favourable monsoon forecasts are expected to support this demand.
Asian Paints is also strategically investing in backward integration projects to support future margins. Key projects, including a white cement plant in Dubai, have already been commissioned. Additionally, a Vinyl Acetate Monomer (VAM) and Vinyl Acetate Ethylene (VAE) project is slated for commissioning in Q1FY27.
Outlook:
Geojit anticipates that Asian Paints' ongoing B2B expansion and product regionalization initiatives will lead to volume growth improving to mid-single digits in FY26. Furthermore, a better product mix and stable input costs are expected to bolster earnings. The target price of Rs. 3,244 is based on a Price-to-Earnings (P/E) multiple of 55 times the estimated Earnings Per Share (EPS) for FY28.
Impact:
This news is positive for Asian Paints and its investors, indicating strong operational performance and a promising future outlook. The 'BUY' rating and increased target price suggest potential upside for the stock. It may also lead to increased investor interest in the Indian paints and home décor sector.
Rating: 8/10
Difficult Terms:
EBITDA Margin: This is a measure of a company's profitability that excludes interest, taxes, depreciation, and amortization expenses. It reflects the operational efficiency of the business.
RM Price: Stands for Raw Material Price. It refers to the cost of the basic materials a company uses to manufacture its products.
Backward Integration: A business strategy where a company takes control of its supply chain by acquiring or merging with companies that provide its raw materials or components.
VAM/VAE: Vinyl Acetate Monomer and Vinyl Acetate Ethylene are key chemical raw materials used in the production of adhesives, coatings, and paints.
P/E Ratio (Price-to-Earnings Ratio): A valuation metric that compares a company's current share price to its earnings per share (EPS). A higher P/E ratio generally suggests investors are willing to pay more for each dollar of earnings, often indicating growth expectations.
EPS (Earnings Per Share): The portion of a company's profit allocated to each outstanding share of common stock. It is a key indicator of a company's profitability.
