Asian Paints shares crack 5%; here's what's brushing a dull picture for the stock

Asian Paints shares crack 5%; here’s what’s brushing a dull picture for the stock

Shares of Asian Paints Ltd, continued to crack further, as the stock dropped more than 16 per cent in the year 2023 so far. The stock has seen a downgrade from CLSA, which has suggested more downside in the stock, post Grasim Industries’ entry in the paint business.

The Hong Kong based overseas brokerage firm CLSA has downgraded the stock to ‘sell’ , maintaining that the growing competition could have an impact on the near-term growth and margins of the paint maker. Grasim Industries forayed into the paint business, launching its ‘Birla Opus’ brand. CLSA slashed its target price to Rs 2,425 from Rs 3,214 earlier.

Asian Paints’ stock tumbled more than 4.5 per cent on Monday to Rs 2850, commanding a total market capitalization of less than 2.75 lakh crore mark. The stock had settled at Rs 2,984.80 on Friday and is down 16 per cent the year 2024 for so far from Rs 3,400 levels.

Market experts believe that ratings downgrades were warranted amid the increasing war in the industry. Asian Paints, leading paint giant in India, faces cautious outlooks from big brokerages amidst the concern of increasing competition, said Mahesh M Ojha, AVP – Research at Hensex Securities.

“The writing was on the walls for a long time. Everyone knew Grasim industries will disrupt the market, it’s just the fact on one wanted to digest it. We believe the next couple of years will be a challenging endeavor for the paint industry. Specially we anticipate Asian paints to give up some market share, which can hurt their profitability as well as sales,” he said.

Grasim Industries has primarily been into flagship businesses of textiles and chemicals. The paint business could make the company the second-largest Indian paint maker by capacity behind market leader Asian Paints, said a report from Reuters, citing market analysts.

The Indian paint industry has witnessed a subdued performance in the past 2-3 years. Several factors contributed to this trend, including the slowdown in the real estate sector, rising raw material costs, intense competition within the industry, and regulatory changes impacting demand, said Sonam Srivastava, Founder and Fund Manager at Wright Research

“The entry of Grasim Industries’ Birla Opus, with its ambitious growth plans, presents a potential challenge to established players. Increased competition could lead to market share battles, earnings pressure, and price wars,” she said, cautioning that the actual impact will depend on factors like Birla Opus’s success, financial health, growth potential, product portfolio and price positioning.

Last week, Grasim Industries Ltd launched its paints business under the ‘Birla Opus’ brand; it expects the unit to generate Rs 10,000 crore ($1.21 billion) in gross revenue in next three years. The company believes to reach break-even within the span. The Aditya Birla Group company had raised money twice in calendar 2023 to fund the paints venture.

Commenting on Grasim, Motilal Oswal said that the company will focus on customer satisfaction, product quality, better incentives to contractors, and faster delivery of products, within four hours of placing orders at most of the locations.

“We largely retain our EPS estimates for FY 24-26. Reiterate ‘buy’ with a target price of Rs 2,670 as we value its holding in subsidiary companies by assigning a discount of 40 per cent; standalone business at 7 times EV/Ebitda; and paint business at 1 times of investments. We do not change our assumptions for the paint business as of now and would wait for the scalability of operations,” it said.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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