NEW DELHI: Since making its market debut more than three decades ago, Asian Paints has been a consistent wealth creator for investors. Barring the year 2022, the stock has given positive returns every calendar year in the last decade and on most occasions has surpassed the gains by benchmark indices - Sensex and Nifty. Recovering sharply from the covid lows of March-April 2020, the stock more than doubled investors in less than two years and strengthened its position as the country’s largest paint company.
However, the blue-chip since then lost the attention of the Bulls. Despite the ongoing euphoria in the market, Asian Paints shares are trading well below their all-time high of R 3,590 (10 Jan 2022). The stock has given a negative return of 13% in the past one year even as the NSE Nifty50 surged 25% during this period. At the current market price of R2,991 apiece, the scrip’s return has been almost flat in three years.
While a degree of correction in stock prices is attributed to external headwinds such as sluggish demand and high commodity prices, the prime reason for the same is reported to be the entry of a new player (Birla Opus), which has ambitions to disrupt the R70,000 paint market.
The stance on the stock, however, now appears to be changing. On Wednesday and Thursday, it witnessed heavy buying amidst reports on price hikes. Asian Paints on Wednesday confirmed the development and said that it has taken a price increase of around 1% at portfolio level, with effect from July 22, 2024.
Domestic brokerage firm Nuvama Institutional Equities said that is a positive move for incumbents to fight Birla Opus by slightly increasing Advertising & Promotion spends and also to keep margins in a healthy range. It added that this also demonstrates that the pricing power of the paint industry remains intact even after the entry of Birla Opus.
Nuvama says that Q1FY25 is likely to be muted for the paint manufacturers and a recovery in coming quarters will be aided by the government’s focus on ‘Housing for All’ and rising aspirations. It maintained ‘BUY’ ratings with a target price of R3,450 for Asian Paints share price.
Analysts at Centrum said that the price hike shows that Asian Paints is confident in its ability to produce double-digit volume and is not concerned about new competitors. Centrum believes the Mumbai-based company to remain a compelling case study for structural growth, capturing demand across segments and town class, despite the resurgence of competition from Birla Opus. It has a Buy call on the stock and a target price of R3,648.
Meanwhile, analysts at ICICI Securities said that volume growth for the paint industry in Q1FY25 is likely to be in mid-single digits.“There was disruption for about 15 days due to limited availability of manpower during elections. We believe volumes may recover around Diwali in Q3FY25. There have been no price cuts since Jan’24. Also, there was no material change in trade schemes,” said the brokerage.
It added, “We believe there is slight inflation in Q1FY25 YoY but also believe it may get managed by inventory sourced at lower prices in Q4FY24.”