After stockbroker CLSA downgraded the company to 'sell' in response to Birla Opus's entry into the market, shares of Asian Paints fell 3.9% on Monday. With a price estimate cut from ₹3,215 to ₹2,425 the company is predicting a loss of more than 15% from Monday's closing price of ₹2,868.40.
According to CLSA analysts Aditya Soman and Vatsal Dujari in a client note, Birla Opus is the newest player in the decorative paints market. It promises to add an additional 40% to industry capacity and has aggressive sales and dealer acquisition ambitions. Although it may be able to hold onto its long-term market position, we think that in the near future, its growth and profitability will not be immune to this competitive pressure.
Asian Paints' values may be devalued as a result of the heightened competition, it stated.
Asian Paints' strong market dominance and high profitability ratios led analysts and investors to give a valuation that is greater than usual.
We predict a strong de-rating of Asian Paints' multiple due to rising competition intensity and likely weaker returns (ROE to decrease to 26.9% in FY26 from 32.7% in FY24).
Compared to the 1.8% increase in the Nifty thus far in 2024, Asian Paints' shares have dropped by over 16%.
Asian Paints Are Downgraded by CLSA; Goldman Sachs Issues A Neutral Rating Brokerage for Post-Grasim's Paints Business Launch After the Aditya Birla Group entered the paint industry, Investec Capital kept its sell recommendations on Asian Paints and Berger Paints. For Asian Paints and Berger Paints, the company has set price targets of ₹2,755 and ₹450, respectively. According to Investec's pricing prediction, Berger's stock price will drop by 20% from its Monday closing of ₹564.90.
Aditya Bhartia and Veenit Pasad of Investec stated in a client note that there is a likelihood of an increase in capex intensity, which is already apparent from plans disclosed by Asian Paints. This might result in poorer return ratios. It doesn't seem like valuations and consensus profit predictions are appropriately accounting for these risks.
