“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.
Agencies“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 closing of ₹564.90.”Capex intensity is also likely to go up (already evident from plans announced by Asian Paints), which would impact lower return ratios,” said Investec’s analysts Aditya Bhartia and Veenit Pasad in a client note. “Valuations and consensus earnings estimates don’t appear to be pricing in these risks adequately.”
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