Asian Paints, Kansai Nerloac shares slip following market correction, muted earnings; brokerages give sector, stock outlook

Paint stocks in focus: Muted March quarter earnings of Asian Paints and Kansai Nerolac did not bode well for the stocks as the counters slipped 3.4 per cent and 6.5 per cent on the BSE on Wednesday in the intraday trade.

The stock movement could also be attributed to the lacklustre show by the overall market as benchmarks BSE Sensex and Nifty50 traded in the red. There was weakness in broader markets as well.   

The sentiment trickled down to other paint stocks as well triggering a fall in Indigo Paints, Berger Paints, Shalimar Paints, and Akzo Noble India. 

Individually, Nerolac dipped most among its peers, and went down 6.5 per cent to touch a new 52-week low of Rs 403 per share. Indigo Paints and Akzo Nobel India too hit their 52-weeks low of Rs 1421.05 and Rs 1780 apiece, after declining by around 3 and 2 per cent on the BSE intraday, respectively. 

Shalimar Paints was another big loser, whose shares slumped nearly 4 per cent to touch the day’s low of Rs 131.05. It was followed by Asian Paints shares, which were down almost 3.5 per cent to Rs 2980 per share on the BSE intraday. 

Similarly, Berger Paints shares plunged by almost 3 per cent to touch the day’s low level of Rs 656.55 a share on the BSE intraday. In comparison, the BSE Sensex slipped 1.4 per cent at around 01:40 PM.  

Crude oil prices have spurted further since Russia’s invasion of Ukraine in February this year. This will continue to weigh on profitability in the near term as paint players may affect only modest price hikes to ensure price-sensitive consumers do not shift to unorganised players. CRISIL Ratings said. 

CRISIL Ratings Associate Director Shounak Chakravarty said, “Crucially, eventual normalization of crude prices may result in margin recovery as the full benefit of a decrease in raw material price may not then be passed on to customers. Assuming crude oil corrects to an average $85-90 per barrel for the fiscal, margins can expand by 150-200 bps to 16.5-17%.” 

YES Securities believes demand for paints is expected to remain robust in the medium-term and Asian Paints is in a sweet spot to capture a major chunk of incremental demand. It continued to remain upbeat on the stock and feels premium valuations are justified.  

The brokerage expects FY22-24E Revenue/EBITDA/PAT CAGR of 18%/34%/39% respectively and maintained a Buy rating with a target of Rs 3,708 per share (20% upside) valuing it at 60x FY24 EPS.