Spike in crude oil price spoils prospects for paint industry; Asian Paints shares slip 16% in 3 sessions on input cost worries

Shares of Asian Paints slipped over 16 per cent amid input cost worries. The stock on Friday witnessed massive selling pressure and tumbled almost 8 per cent to touch a day’s low of Rs 2,662.35 apiece on the BSE intraday trade. The decline has been for the third straight session.  

The recent surge in the crude oil prices is somehow denting the confidence of investors in the paint stocks, including Asian Paints, which is the India’s largest paint company in terms of volume. The paint industry uses crude oil derivatives such as monomers and titanium dioxide as raw materials. 

The counter has touched its lowest level since March 2021, and it had hit a 52-week low of Rs 2,343.85 on March 15, 2021. 

Experts believe that the steep and unprecedented inflationary trend in raw materials may further impact the gross margins of the company. As it had already contracted by 833 basis points year-on-year (YoY) to 36.8 per cent, across businesses of the company in December-end quarter (Q3FY22). 

In Q3FY22, the consolidated revenue grew 25.6 per cent YoY, while EBITDA/ PAT declined 13.7 per cent/ 18.0 per cent, driven by 18 per cent YoY volume growth in the domestic decorative segment. 

Inflation in commodity prices and, more specifically, in input materials in the company product segments across geographies, has risen significantly since the last quarter of FY2020-21, and continues to be on the uptrend, the paint company had said in its annual report.  

It had further added that the challenges to business posed by this inflationary pressure and the uncertain market conditions, would place strong emphasis on managing the business in a dynamic manner and altering operational priorities to suit the changing market conditions. 

Antique Stock Broking advices investors to Hold the stock given its good fundamentals and expects the stock to grow by 17 per cent and sets a target price of Rs 3,361 per share.