Paint companies shares jump up to 4% intraday as crude oil slips below $100- know what brokerage says on sector

Shares of paint companies witness an upward rally, surging up to 4 per cent on the BSE intraday during Wednesday’s trading session, as the crude oil prices witness a steep fall by over 7 per cent, below $ 100 per barrel overnight. 

Individually, Kansai Nerolac gained most of all paint stocks, up nearly 4 per cent, followed by Asian Paints, Berger Paints, and Shalimar Paints each surged around 2.5 per cent, while Indigo Paints and Akzo Noble India grew between 1.5-2 per cent on the BSE intraday. 

Oil prices fell in early Asian trading on Wednesday as U.S. inventory data showed buildups in crude oil and refined products amid rising fears of a global economic slowdown, as per Reuters report. 

Brent crude futures fell 68 cents, or 0.7%, to $98.81 a bbl at 0002 GMT. US West Texas Intermediate crude declined 72 cents, or 0.8%, at $95.12, also the lowest in three months, the report further said. 

Likely fall in demand amid the economic recession fear is impacting the crude prices, Zee Business Managing Editor Singhvi said, and it is obvious that commodities including crude may see softness, he added.

However, the concerning factor is the way crude slips in percentage-wise, like a 5-7 per cent swing in crude has become normal, Singhvi pointed out. 

Over 300 items are used in the manufacturing of any paint, most being petroleum-based. However, the softening of crude oil prices reduces the cost of producing, items such as titanium dioxide, a key ingredient for white paint.  

Demand is expected to remain firm in 1QFY23 as April-May 2022 has been very encouraging, Nirmal Bang said. On a 3-year CAGR basis, even though the brokerage is building in slight softening in volume growth, it still remains in double digits. 

Paint companies have taken further pricing actions in May and June 2022, with a combined hike of around 2 per cent, to combat the elevated raw material prices, the brokerage said. 

Aided by market share gain and pricing growth, Nirmal Bang expects Paint companies to record a combined topline growth of 39.8 per cent YoY and 14.8 per cent over 1QFY20 (3-year CAGR).  

On a low base, it expects the paint sector to see EBITDA margin expansion of around 180bps YoY (but down 40bps QoQ). Absolute EBITDA and Adjusted PAT are expected to grow by 55.6 and 65.6 per cent YoY, respectively, the brokerage said.