Margin shine can’t mask muted demand as India’s decorative giant navigates competitive headwinds
Asian Paints delivered a curious third quarter—margins sparkled even as topline growth sputtered, leaving analysts divided on whether the worst of competitive pressures has passed or merely paused.
The company’s consolidated revenue crawled 4% year-on-year to Rs 88.7 billion, missing Motilal Oswal’s estimate of Rs 91 billion. Domestic decorative volumes rose just 8%, falling short of the anticipated 12% growth despite what should have been tailwinds: a favorable base and multiple company initiatives.
“The management commentary on demand recovery was uninspiring, especially after the constructive commentary post-2QFY26,” Motilal Oswal noted in its report. The brokerage expects volumes in the 8-10% range with value growth of around 5% in the near term—hardly the robust recovery investors have been waiting for.
The Margin Mystery
Yet here’s where the story gets interesting. Gross margins expanded a robust 200 basis points year-on-year to 44.4%, significantly ahead of the 43.8% estimate. EBITDA margins improved 90 basis points to 20.1%.
Antique Stock Broking sees a silver lining in these numbers. “In our view, it could also be due to receding competition and better pricing power,” the firm suggested, beyond just raw material deflation. If competition is indeed easing—a big if—Asian Paints might be regaining the pricing leverage it temporarily surrendered.
The divergence in analyst interpretation is telling. Motilal Oswal attributes margin gains primarily to “lower raw material costs” and “formulation and sourcing efficiencies.” Antique sees “receding competition” as a contributing factor. The truth likely lies somewhere in between, but for investors, the distinction matters enormously.
Strategic Bets Beyond Paint
Beyond core decoratives, the results revealed a mixed portfolio. According to Motilal Oswal’s report, “The industrial segment clocked mid-teen growth (+17% YoY) aided by overall coatings performance.” White Teak business revenue grew 12%, while Weather Seal surged 59%.
But the home décor story remains uneven. Kitchen sales “turned positive with 2.6% YoY growth (post 3 quarters of decline)” per Antique’s analysis, while bath business declined 4%. These adjacencies were supposed to be growth engines; instead, they’re reminders that expanding beyond core competence is harder than it looks.
Internationally, the 6.3% value growth (4.2% in constant currency) from markets like UAE, Sri Lanka, and Ethiopia provides geographic diversification but hardly moves the needle for a company of Asian Paints’ scale.
The Valuation Conundrum
Here’s where the wealth-building calculus gets tricky. Asian Paints trades at roughly 51x FY27 earnings and 45x FY28 estimates according to Antique—a premium valuation that assumes premium execution.
Motilal Oswal values the stock at 50x December 2027 earnings for a target price of Rs 2,950, representing just 12% upside from the current market price of Rs 2,623. Their rating: Neutral. “Given slower demand recovery and competitive pressure, the near-term growth outlook looks muted,” they write.
Antique is more optimistic, maintaining a BUY with a target of Rs 3,241 based on 55x FY28 P/E—a 3% premium to the 10-year average. Their thesis: “Combined with APNT’s own strategic initiatives, regionalization, enhanced product mix through NPD, and increasing traction in waterproofing, we expect the growth momentum to sustain.”
Quality versus Growth
For investors building long-term portfolios, Asian Paints presents a classic quality-versus-growth dilemma. The company maintains its EBITDA margin guidance of 18-20% and continues investing in brand equity despite competitive intensity—hallmarks of a market leader playing the long game.
But several questions demand answers: Will volume growth truly accelerate to double digits, or is high-single-digit the new normal? Has competitive intensity genuinely peaked, or is this just a temporary breather? Can the company sustain premium valuations if it delivers merely mid-single-digit revenue growth?
As Motilal Oswal observes, “As the paint category enjoys pent-up demand, we will be watchful if the recovery pace picks up faster in the coming seasonal quarters.” That watchfulness is warranted.
No doubt, Asian Paints remains a quality franchise.
