As crude oil slumps 30%, paint stocks come back in focus; brokerage sees 68% upside in these stocks

As the crude oil prices slump over 30 per cent after hitting 14-year high levels, shares of paint companies came back in focus on Wednesday. Asian Paints, Berger Paints, Indigo Paints, Kansai Nerolac and Akzo Nobel Indian shares jumped around 2 per cent each on the BSE on the intraday basis. 

Asian Paints and Kansai Nerolac shares were up over 2 per cent and were trading at Rs 3049.9 and Rs 465.45 respectively. Meanwhile, Indigo Paints, Berger Paints and Akzo Nobel India also gained almost 2 per cent to trade at Rs 1657.6, Rs 707.25, and Rs 1964.95. 

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The pain stocks were outperforming the BSE Sensex, which was trading higher by 1.5 per cent at 56629 around the same time. 

The industry manufactures at least 300 items which are dependent upon crude oil for inputs. The softening in crude oil prices reduces the cost of producing items such as titanium dioxide which is a key ingredient for white paint.  

The Indian paint industry has a long runway for growth, led by favourable demography and potential for growth in the housing segment, shortening of repainting cycle, shift from unorganized to organized, urbanization and nuclearization and premiumization, Haitong International said in its paint sector report. 

It added, “The organized paint industry in India enjoys strong competitive moats in the form of; strong entry barriers for new players (building extensive distribution network, ability to set up tinting machines and strong brand equity), disciplined competition, no disruption from online retail or DIY.” 

The research report expects the industry to deliver strong revenue growth over medium term led by volume growth and price hikes undertaken in response to inflationary raw material prices. 

Haitong International initiate on Outperform rating on Asian Paints, Indigo Paints and Kansai Nerolac and Target prices of Rs 4,000, Rs 2,730 and Rs 725 per share respectively, which implies an upside of 31, 68, and 56 per cent. On Berger Paints, the brokerage initiate coverage with a Neutral rating and target of Rs 840 per share, 19 per cent upside. 

The brokerage value Asian Paints, Berger Paints, Kansai Nerolac and Indigo Paints at target multiples of 70x/62x/45x/55x on our March 2024 EPS estimates.