Buy or sell: Paints sector in consolidation mode. Add Kansai Nerolac, reduce Asian Paints, Berger
Also Read: Stocks to Buy: Tata Steel, JSW Steel, Jindal Steel & Power among top bets in metal sector It believes M&As could help new players to secure competitive advantages such as brands, distribution and stronger connect with painters. ICICI Securities advises investors to stay underweight in paint stocks. It believes the likely increase in competitive intensity may hurt industry profitability and cap valuation multiples.
The brokerage has a ‘Reduce’ rating on Asian Paints, Berger, Akzo and Indigo Paints, and ‘Add’ rating on Kansai Nerolac. ICICI Securities has an ‘Add’ rating on Kansai Nerolac with a target price of ₹360 per share. It expects EV/EBITDA of 24x and 21x over FY24 and FY25, respectively.
The brokerage expects the company’s revenue, EBITDA and PAT to grow at a CAGR of 11%, 20% and 27% over FY23-FY25. The brokerage estimates Akzo Nobel’s revenue, EBITDA and PAT to grow at a CAGR of 11%, 16% and 19% over FY23-FY25. It has a ‘Reduce’ call on the stock with a target price of ₹2,650 per share.
Also Read: Jio Financial Services share price extend gains; locked at 5% upper circuit; here's why Asian Paints share price has gained just over 6% this year so far, while the stock is down a little over 3% in the last one year. ICICI Securities has a ‘Reduce’ rating on Asian Paints with a target price of ₹3,000, implying a downside of around 8.6% as compared to Tuesday’s closing price. Asian Paints, market leader, has cut its EBITDA margin target range from 23% earlier to 18-20% now.
The brokerage firm expects the company to deliver Revenue, EBITDA and PAT growth at a CAGR of 10%, 15% and 14% over FY23-FY25. EV/EBITDA is expected to be at 40x in FY24 and 38x in FY25. Berger Paints share price has rallied more than 23%
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