Paint stock in focus: The silent March quarterly earnings of Asian Paints and Kansai Nerolac did not yield good results for the stocks as counters on the BSE fell 3.4 percent and 6.5 percent on Wednesday.
The stock movement can also be blamed for the sluggish performance of the overall market as the benchmark BSE Sensex and Nifty 50 traded in red. There was also weakness in the larger market.
Sentiment fell on other paint stocks, including Indigo Paints, Berger Paints, Shalimar Paints and Akzo Nobel India.
Individually, Nerolac fell the most among its peers, and fell 6.5 percent to touch a 52-week low of Rs 403 per share. Indigo Paints and Akso Nobel India also retreated to their 52-week lows of Rs 1421.05 and Rs 1780, respectively, after falling nearly 3 and 2 per cent on the BSE intraday, respectively.
Shalimar Paints was another big loss, with shares falling nearly 4 percent to touch a day low of Rs 131.05. It followed shares of Asian Paints, which lost about 3.5 per cent to Rs 2,980 on the BSE intraday.
Similarly, shares of Berger Paints fell nearly 3% to a low of Rs 656.55 per share on the BSE Intraday. By comparison, the BSE Sensex is down 1.4 percent at around 01:40 PM.
Crude oil prices have risen sharply since Russia’s invasion of Ukraine in February this year. This will continue to weigh on profitability in the near term as paint players can only influence price increases to ensure that price sensitive customers are not transferred to unorganized players. Crisil rating said.
Shaunak Chakraborty, Associate Director, CRISIL Rating, said, “Significantly, the final normalization of crude prices may result in margin recovery as the full benefits of lower raw material prices may not go to consumers.” By adjusting for an average of-85-90 per barrel of crude oil in fiscal year, margins could expand to 16.5-17% by 150-200 bps. ”
Yes Securities believes that demand for paints is expected to remain strong in the medium term and Asian Paints is in a sweet spot to capture a large portion of the growing demand. It stays bullish on the stock and considers the premium valuation to be fair.
The brokerage FY22-24E expects revenue / EBITDA / PAT CAGR 18% / 34% / 39% respectively and maintains a buy rating with a target price of Rs 3,708 (20% upward) per share, valued at 60x FY24 EPS.