CLSA downgrades Asian Paints to 'Sell', saying its growth and margins will not be immune to competitive pressure

Asian Paints share price: Shares of Asian Paints were deep in the red on Monday, February 26, as most global brokerages have sharply cut their target prices for the counter, saying the entry of Grasim Industries in the paint sector is set to intensify the competition and that Asian Paints does not look immune to it. 

CLSA, for instance, has downgraded Asian Paints to 'Sell' from 'Underperform' and has slashed the target price to Rs 2,425 from Rs 3,215 earlier, a steep 24.57 per cent cut. In its note, the global brokerage said that the competitive intensity in the paint sector is likely to heat up significantly with the advent of Grasim Industries' Birla Opus.

The brokerage believes that in the near term, Asian Paints' growth and margins will not be immune to this competitive pressure. However, it may maintain its long-term market position. The brokerage has cut Asian Paints' FY25/26CL estimates by 8 per cent / 10 per cent.

The stock settled at Rs 2,868.40 on the BSE, down 3.90 per cent.

Goldman Sachs, too, has cut the target price to Rs 2,825 from Rs 3,300 earlier. It has also cut the EPS estimates for FY25 and FY26 by 5.2 per cent /10.9 per cent, respectively, and lowered target multiples to 52 times from 58 times earlier. The brokerage added that Birla Opus' paint strategy details are way more comprehensive than earlier assumed. 

Macquarie, on the other hand, has maintained an 'Outperform' rating on the counter with a target price of Rs 4,000. The brokerage highlighted that Grasim Industries has shared a focus on driving distribution based on product quality and deeper contractor/painter connect. The brokerage prefers Asian Paints as it believes that smaller companies, such as Berger Paints, would be relatively more affected by the entry of the new player. 

Grasim Industries, on the other hand, settled nearly half a per cent lower at Rs 2,184 after a sharp run-up in the stock. 

All about Grasim Industries' paint entity, Birla Opus

Last week, Aditya Birla Group said that it was targeting an initial revenue of Rs 10,000 crore and profitability within three years of full operations of its new venture in the decorative paints business. The group on Thursday commenced operations at three plants for its new decorative paints business under Birla Opus.

"Our vision is ambitious, and our initial goal is clear: to clock revenues of Rs 10,000 crore and turn profitable not later than the third year of full-scale operations," Birla said while launching the Birla Opus Paints Business and inaugurating three Birla Opus paints plants at Panipat (Haryana), Ludhiana (Punjab), and Cheyyar (Tamil Nadu).

Grasim Industries, the flagship firm of the group, had last year announced its foray into the decorative paints business, committing investments of Rs 10,000 crore with plans to set up six manufacturing plants in India by 2025. READ MORE