Paint Stocks: Not Asian Paints Alone! But, Akzo Nobel, Berger, Grasim, Kansai All Fall Down; Who To BUY/SELL?

Leader of paint stocks, Asian Paints Ltd witnessed a bloodbath in its share price on both BSE and NSE. The downfall in Asian Paints was such that the heavyweight crumbled to hit a new 52-week low. But it wasn't alone! Share prices of all paint stocks nosedived on Monday, November 11, 2024. The reason behind the latest downfall could be attributed to challenging demand that pushed Asian Paints quarterly earnings to miss estimates at all fronts. Also, after Asian Paints, the second largest player Grasim's earnings is the next to watch out for.

Asian Paints Share Price:

After market hours of November 11, Asian Paints share price dipped by 8.18% to end at Rs 2542.65 apiece on BSE, with a market cap of Rs 2,43,890.43 crore. During the trading session, the frenzy selling by investors led the stock to topple to the point it touched its lowest level since May 2021 and hit a new 52-week low of Rs 2,507 apiece.

Motilal Oswal explains that Asian Paints reported a consolidated net sales decline of 5% YoY to Rs 80.3 billion (estimated Rs 85.2 billion), impacted by weak demand conditions, price cuts taken last year, a shift in the mix, and increased rebates.

Its volumes were down by 0.4% against the estimate of growth of 5.5% in the domestic decorative paints business. Also, Motilal highlighted that weak consumer sentiment coupled with persistent rains through the quarter and floods in some parts of the country impacted consumption. Asian Paints gross margins contracted 260bp YoY to 40.8% (est. 43%).

Hence, Motilal said it missed on all fronts.

Paint Stocks Downfall On November 11:

Following the decline of the leader, its peers also faced a similar brunt.

Akzo Nobel ended lower by 5.6%, while Berger Paints dipped by 2.5%. Grasim, the second largest player in the paint sector, fell by 1.02%. Indigo Paints and Kansai Nerolac also plunged by 2.9% and 1.2% respectively. Lastly, Sirca Paints dived by 3.2%.

Going ahead, Grasim and Sirca will announce their Q2 results on November 14.

Grasim Q2 Results Preview:

For Grasim's Q2FY24, Antique Stock Broking said that the company's EBITDA may decline by 43% YoY/ rise 5% QoQ owing to higher losses in new businesses.

Which Paint Stocks To BUY/SELL?

Earlier, ICICI Securities highlighted that the paint industry has likely declined by ~2% in Q2FY25. There is also steep increase in competitive pressures.

Just like analysts downgraded their outlook on Asian Paints, experts also reduced their rating on other paint stocks that have announced their Q2 results.

Berger Paints Share Price:

Such as Berger Paints! ICICI Securities in its report said, that considering the industry slowdown and steep increase in competitive pressures, we believe Berger reported moderate results with volume growth of 3.6% YoY. While the EBITDA margin contracted 147bps YoY to 15.6% in Q2FY25, it was within the guided band of 15%-17%. Berger has also intensified the investments in urban markets with additional investments in distribution and GTM. Its market share in key metros is ~10% compared to the pan-India (likely M&A opportunity) market share of ~20%. It plans to steadily improve market shares to ~15%. It also added 2,200+ retail touchpoints and 2,000+ colorbank machines in Q2FY25. Berger also indicated that there is a healthy improvement in the off-take of premium products which are margin accretive.

ICICI Securities note added, "The demand has also improved towards the end of Sept'24 indicating likely recovery in off-take in H2FY25. We reckon [comfortable] competitive equilibrium in paints is likely broken. Retain underweight on large cap paints. Maintain REDUCE."

Kansai Nerolac Share Price:

Also, Kansai Nerolac's operating performance was weak with muted revenue growth and lower-than-expected profitability. During the quarter, industrial paint performance was stable while decorative paints witnessed subdued performance on account of the heavy monsoon. Profitability was below expectations due to weakness in decorative paints, as per Antique Stock Broking.

However, with expectations of stable growth in industrial paint sector, with broad-based growth across automotive, auto refinish, and performance coating segments, Antique is expecting gradual recovery in demand. Hence, it recommended BUY on Kansai with target price of Rs 370.

What about Asian Paints?

Morgan Stanley has maintained underweight on company with target price trimmed to Rs 2,522 per share. The outlook is negative. Brokerages like Nomura, CLSA, and CLSA have maintained NEGATIVE outlook.