Asian Paints Maintains Buy Rating, Sees Target Price of Rs 2626.

Asian Paints: Prabhudas Lilladher Raises FY27/FY28 EPS Estimates by 4.1%/9.0%

In a recent research report, Prabhudas Lilladher has increased its earnings per share (EPS) estimates for Asian Paints for the fiscal years 2027 and 2028 by 4.1% and 9.0%, respectively. This upward revision is driven by several factors, including the company's better-than-expected performance in the fourth quarter of 2026 and fiscal 2026. Specifically, the report highlights Asian Paints' guidance of 8-10% volume growth (which includes putty and construction chemicals) with margins of 18-20% for the current year.

Asian Paints has also seen sustained traction in both its Auto and General industrial segments, contributing to the increase in EPS estimates. However, the report notes that the heightened competitive scenario in the decorative paints market has not changed, with players like Birla Opus, JSW Akzo, and JK Cement continuing to make inroads into the segment.

Key Margin Metrics

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The report suggests that Asian Paints is at a cyclic peak in terms of margins, with the company's gross margins having peaked at 45.8% for standalone and 44.8% for consolidated. Additionally, the sharp increase in input costs due to high crude prices is expected to put pressure on margins. Although Asian Paints has taken an 11% price hike so far, the report notes that margins are likely to trend lower in the first half of 2027 on a quarter-over-quarter basis.

Furthermore, the report highlights a sharp rise in profit before tax (PBT) from Rs1.35 billion to Rs3.1 billion in fiscal 2026, which will now come under pressure due to higher input costs and the Middle East business.

Outlook and Recommendations

Prabhudas Lilladher expects double-digit profit growth in the first half of 2027, but notes that peaked-out margins will prevent a significant re-rating from current valuation levels of 46.8 times FY28 EPS. While the stock is unlikely to test recent lows of approximately Rs2,100, further re-rating also looks unlikely. The report estimates revenue and EPS compound annual growth rate (CAGR) of 8.8% and 10.5%, respectively, over fiscal 2026-28.

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The research firm values the stock at 46 times March 2028 earnings per share (EPS) and revises its target price to Rs2,626 (previously Rs2,464). The report retains a Hold recommendation for Asian Paints.