1:10 Stock Split: 400-To-2800, Asian Paints Share Gains, 560% Return In Long-Term; BUY For Rs 3,300-3,900 TP

Asian Paints, the largest paint player in India, finally witnessed a run of bulls on Thursday with stock price rising by nearly a per cent. Asian Paints share is currently trading near its day's high. This will be the first ray of green after four consecutive sessions selloffs due to entry of Grasim Industries in the paint market which led to a series of downgrades in leading paint stocks including Asian Paints. However, although, the new entrant poses challenges, the majority of brokerages have either recommended holding or buying Asian Paint stock with a target price ranging from Rs 3,300 to Rs 4,000.

Also, it needs to be noted that despite the latest downfalls in Asian Paints, the stock is a multi-bagger in the long term. Up to 560% returns had been fetched in Asian Pains in 10 years. Not only that, Asian Paints has also increased the number of shareholding in investors' books since its stock split of 1:10 that took place in July 2013, giving multi-fold returns since then.

At the time of writing Asian Paints' share price gained by over 1% to Rs 2,821.95 apiece, which was near its day's high of Rs 2,822.90 apiece on BSE with a market cap of Rs 2,70,680.82 crore. In terms of market share, Asian Paints is the largest paint player in the country.

Asian Paints' share price fell by over 7.4% in selloffs from February 22 to February 28th.

Upon reviewing Grasim's portfolio for the paint sector, CLSA downgraded its stance on Asian Paints to SELL from an earlier 'Underperform' rating.

In its research report, Elara Capital said, "Grasim Industries has unveiled its new decorative paints brand, Birla Opus, with ambitious targets to achieve INR 100bn in gross revenue and become profitable within three years of full-scale operations (at a utilization of c.50%+). The company plans to disrupt the paint industry by adding 40% to the industry's capacity, totalling 1,332MLPA across six manufacturing plants."

Further, the brokerage highlighted that Birla Opus products will hit the markets of Punjab, Haryana, and Tamil Nadu by mid-March 2024, and will be available in all towns with a population of >100,000 by July 2024. The company aims for rapid distribution expansion to >6,000 towns by end-FY25, marking the fastest, most extensive pan-India launch in the paint industry's history.

Accordingly, Elara said, "We maintain a negative stance on our paints coverage universe and reiterate Sell on APNT, and Reduce on both BRGR and KNPL. The impact of this launch and the changing industry dynamics will be visible in the next 1-2 years and competition will intensify."

While it will be keenly watched how Grasim disrupts the market share of already listed paint companies especially Asian Paints, nonetheless, not all brokerages have changed their stance on the current leader.

The latest to recommend Asian Paints is Anand Rathi due to its healthy performance. In its FMCG sector Q3FY24 review report dated February 27, Anand Rathi said, "The paints sector saw healthy earnings growth last year, led by margin tailwinds due to the fall in input prices. Asian Paints, the leader, saw a healthy performance with near double-digit volume growth in the last four quarters."

On Asian Paints, Anand Rathi added, "We expect gross-margin gains to endure, though at a slower pace; A&SP spends are likely to rise, offsetting gross-margin gains. The recent fall in valuation is unlikely to bring investor interest as new entrants could pose challenges (market/product disruption) keeping valuations in check." It added, "We lower the stock to a Hold with an unchanged TP of Rs3,650."

Antique Stock Broking has still maintained a Hold on Asian Paints with a target price of Rs 3,362 apiece. Further, JM Financial has recommended a hold for a target price of Rs 3,470 for 12 months.

Meanwhile, recently, Shiju Koothupalakkal - Technical Analyst, Prabhudas Lilladher said, "The stock after witnessing a decent correction has once again attained the long-term trendline support zone at 2900 levels where it has shown signs of bottoming out and has indicated a pullback with bias improving."

Koothupalakkal added, "Previously, on two occasions, it had indicated a decent trend reversal from the trendline support zone, and currently, in a similar manner, we anticipate a further rise in the coming days with the RSI, hovering near the highly oversold zone has indicated a trend reversal to signal a buy. With the risk-reward favourable and the chart looking very attractive, we suggest a buy in the stock for an upside target of 3340 keeping the stop loss at the 2860 level."

Further, last month, Religare Broking had a target price of Rs 3,939. In its research note, Religare said, " Asian Paints posted strong numbers for Q3FY24 and going ahead government spending towards infrastructure & housing and demand from real-estate will continue to aid growth. Besides, a normal monsoon and moderating inflation will help the performance of the rural economy."

Religare further added, "Besides, the company's focus remains on innovating differentiated products, growing the decorative segment along with scaling its Home décor as well as strong growth is expected from industrial, automotive and coating businesses. Further, improved product mix, efficiency measures and further easing of raw material prices will aid in margin improvement. On a financial front, we estimate its revenue/EBITDA/PAT to grow at 10.2%/21.3%/25% CAGR over FY23-26E and maintain a Buy rating with a target price of Rs 3,939."

Asian Paints is a multi-bagger in the long run.

Adjusted to its first and only stock split as of now, Asian Paints share price has gained by a whopping 560.76% in nearly 11 years. The stock price was at Rs 427.22 levels on February 28, 2013. So if you had invested Rs 1 lakh in Asian Paints, 11 years ago, on February 28, you would be holding up to 234.07 equity shares. But after its stock split of 1:10 ratio which came into effect from July 30, 2013, your number of shares would have increased to 2,341 points. The record date to determine eligible shareholders for the stock split was on July 31, 2013. And from the stock split record date, Asian Paints share has zoomed 451.5% as of now.

Asian Paints has been rewarding its shareholders significantly since early times. The company has delivered up to 50 dividends since October 2000. It issued bonus shares in a ratio of 3:5 in August 2000 followed by 1:2 issuance in August 2003.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.