Why Paint stocks are under pressure? brokerages, expert explain

Paint companies’ shares witnessed a weakness of up to 8 per cent on the BSE intraday during Tuesday’s sessions after Grasim Industries made and announced to double the capital expenditure (Capex) for its entry into the paints business to Rs 10,000 crore. 

Individually, Asian Paints and Berger Paints shares slipped by most of all, by over 8 per cent, followed by Indigo Paints down 4 per cent, while Akzo Noble India tumbled by almost 3.5 per cent and Kansai Nerolac dipped by almost 3 per cent on the BSE intraday trade today. 

Paint stocks are mainly seeing the impact of Grasim doubling its capex for the paint business, said Choice Broking Executive Director Sumeet Bagadia. He added, Asian Paints shares showing crack are mainly on Grasim announcement while Berger Paints down on the weak charts and the news.  

Minutes before market close, Grasim Industries shares traded nearly 2 per cent lower to Rs 1,377, the stock is trading near its 52-week low of Rs 1,354 that it had hit on May 25, 2021. In comparison, the S&P BSE Sensex was down 0.55 per cent at 53,756 points at around 03:15 PM. 

As per Grasim’s filing, “Market dynamics of the decorative paints sector has changed with new capacities being announced backed by strong growth and outlook. We have accelerated the execution of our paint’s capacity of 1,332 MLPA with commissioning of plants to start by Q4FY24.”  

The project cost is likely to be around Rs 10,000 crore by FY25, the Aditya Birla Group company said, and expects to start production from the fourth quarter of 2023-24 (FY24). Grasim Industries’ board, earlier in In August 2022, had approved Rs 5,000 crore capex plan to set up a paints business. 

Grasim has a strong foothold in the building material business through its group companies, which will help the company to leverage its dealer networks and gain market share, largely from the unorganized players (~25 per cent of total industry), ICICI Securities said in its report. 

"The decorative paint industry has grown at CAGR (Compound Annual Growth Rate) of 12 per cent in last five years and has seen the entrance of various national and international brands into domestic markets, the brokerage added. 

However, the top players continue to maintain their market share indicating more formalisation of the paint industry," ICICI Securities also said in its note.