Shares of Asian Paints tumbled over 4% in intraday trade on Monday, extending losses for the second straight session, as sentiments were dented by rating downgrade and cut in target prices after the entry of Grasim Industries in the paint sector. The stock has fallen as much as 5.6% in two sessions after the launch of ‘Birla Opus’ by Aditya Birla Group flagship Grasim Industries last Thursday. Analysts believe that the stock may see sideways movement in the backdrop of rising competition from new entrants such as JSW and Grasim, which will keep the profitability under check in the near term.
Early today, Asian Paints shares opened lower at ₹2,955, down 1% against the previous closing price of ₹2,984.80 on the BSE. During the sessions, the paint heavyweight declined 4.55% to hit an intraday low of ₹2,850, while the market capitalisation dipped to ₹2.75 lakh crore. The stock touched its 52-week high of ₹3,566.90 on July 24, 2023, and 52-week low of ₹2,705.90 on April 3, 2023.
Foreign brokerage CLSA has downgraded Asian Paints to 'Sell' from 'Underperform', while slashing the target price by 24.57% to ₹2,425 from ₹3,215 earlier, citing increasing competitive intensity in the paint sector with the entry of Grasim Industries’ Birla Opus.
The brokerage in its report says that Asian Paints' growth and margins will not be immune to the competitive pressure in the near term, cutting the company's FY2025 and FY2026 earnings estimates by 8% and 10%, respectively.
Another global brokerage, Goldman Sachs also cut the target price on Asian Paints, while maintaining its "neutral" rating on the stock. The agency has lowered the price target to ₹2,825 from ₹3,300 earlier, while it slashed the EPS (earnings per share) estimates for FY25 and FY26 by 5.2% and 10.9%, respectively.
On the other hand, Macquarie has retained its "outperform" rating on Asian Paints with a price target of ₹4,000. The brokerage says that despite Birla's paint entry, discounting levels will not rise sharply for the industry. The agency said that it prefers Asian Paints over Berger, which would be relatively more affected by the new entrants.
Last Thursday, Grasim Industries launched its paints business with a proposed investment of ₹10,000 crore for the plants with a total of 1,332 million litres per annum capacity. The Aditya Birla Group's new decorative paint business is likely to disrupt the paint industry with 40% capacity addition from its new six plants--- of which three are commissioned.
Speaking at the launch of the business in Panipat, Aditya Birla Group chairman, Kumar Mangalam Birla, said that the business would target a gross revenue of ₹10,000 crore in 3 years of full-scale operations. It will turn profitable with a revenue of ₹10,000 crore, he said.
The ₹80,000 crore decorative paint market is currently dominated by Asian Paints, Berger Paints, and Nerolac. With the entry of JSW Paints and Birla Opus in the paint sector, the competition is set to intensify in this space.
In the December quarter of FY24, Asian Paints posted 34.9% growth in consolidated net profit at ₹1,447.7 crore against ₹1,072.7 crore in the corresponding period of the previous year. The net sales grew 5.4% to ₹9,074.9 crore in Q3 FY24, against ₹8,607.5 crore in the same period last year. The sales of the company’s domestic decorative business grew 12% in terms of volume and 5.5% in terms of sales.
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