Asian Paints, Berger Paints shares under pressure as Birla Opus price list indicates discounts to industry rates

Most paint stocks faced selling pressure on Tuesday after Aditya Birla group company Grasim released the price list of its newly launched paint brand Birla Opus. At noon, Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel and Indigo Paints traded between 0.1 per cent 2.4 per cent lower.

Analysts said the Birla Opus prices showed discounts to industry rates, leading to caution among investors in the paint segment. 

According to Zee Business research, Birla Opus prices indicated a discount of 5 per cent to the rates of rival Asian Paints' products. 

The new entrant has doled out discounts across categories, according to the research. 

At the time of launch, the company promised to offer an additional 10 per cent volume to each of the stock keeping units (SKUs).

Taking that into account, the discount amounts to 15 per cent, according to Zee Business analysts.

What other analysts say

Analysts at IIFL Securities believe that Birla Opus prices could impact the revenue as well as profits of incumbents, as the brokerage maintained a cautious stance on the space after the development, with a 'reduce' rating each on Asian Paints, Berger, and Kansai Nerolac.

While the Birla Opus discounts are spread across categories such as interiors, exteriors, enamel and water-proofing, its prices are priced at par with Asian Paints in the putty segment.

"Price differential, schemes and volume free promotion translates to a significant total pricing advantage, which would be spread between consumers, painter/contractors and dealers based on market competitive dynamics," analysts at IIFL Securities wrote in a research note. 

Here are five things that it highlighted: 

• Birla Opus seems to be going aggressive on all fronts
• Its strategy/approach seems impressive
• Execution needs to be monitored; if done correctly, Birla could become a material player in paints over the medium-to-long term
• Incumbents' topline and bottomline to be under pressure for at least a few quarters
• Retaliatory action from incumbents needs to be monitored

Paint stocks were also under pressure owing to a four-month high in benchmark crude oil rates, on the back of lower exports from Saudi Arabia and Iraq, and signs of stronger demand and economic growth in China and the US. 

Brent crude oil futures were last trading down by 16 cents at $86.7 a barrel and US West Texas Intermediate (WTI) futures by 13 cents at $82 a barrel. 

Crude prices have a bearing on paint companies crude is the raw material used in the paints industry and rising crude reduces the profit margin for paint companies.

With inputs from Reuters

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