Asian Paints slumps on CLSA's sell rating
economictimes.indiatimes.comAsian Paints slumped 3.9% on Monday after brokerage CLSA downgraded its rating on the stock to 'sell' following the entry of Birla Opus into the industry. The firm slashed its price target to ₹2,425 from ₹3,215, implying a downside of over 15% from Monday's closing price of ₹2,868.40.
«Birla Opus is the latest new entrant in the decorative paints market, promising an incremental 40% addition to industry capacity, with aggressive sales and dealer acquisition targets,» said CLSA's analysts Aditya Soman and Vatsal Dujari in a client note. "...we believe near term its growth and margins will not be immune to this competitive pressure although it may maintain its long-term market position."
The increased competition could result in the derating of Asian Paints' valuations, it said.
Investors and analysts assigned higher-than-average valuations to Asian Paints because of the dominant market share and high profitability ratios.
«With increased competitive intensity and likely lower returns (ROE to fall to 26.9% in FY26 from 32.7% in FY24), we see Asian Paints' multiple de-rating significantly.»
Asian Paints shares are down close to 16% so far in 2024 as against the 1.8% up move in the Nifty.
Brokerage Investec Capital also maintained its sell ratings on Asian Paints and Berger Paints following the Aditya Birla Group's foray into the paints sector. The firm has set a price target of ₹2,755 for Asian Paints and ₹450 for Berger Paints. Investec's price estimate on Berger implies a fall of 20% from the stock's Mon8day
