Share Market Update: Shares of these paint companies have seen a decline of 10% to 35% in the past year, making their valuations more attractive now. ICICI Securities now considers them a better option for investment. Here's their analytical view.
On July 1, a major development related to the paint sector emerged in the stock market when leading brokerage firm ICICI Securities changed its view on the sector after four years. Having maintained a negative outlook for a long time, ICICI Securities has now given a positive recommendation for Asian Paints and Berger Paints. Following this report, investors' eyes are fixed on the shares of these two major companies.
ICICI Securities gives 'Add' rating
ICICI Securities has changed the rating of two दिग्गज shares of the paint sector, Asian Paints and Berger Paints, from 'Reduce' to 'Add'. Along with this, the target prices of both companies have also been increased. The target price for Asian Paints has been increased from ₹2,000 to ₹2,700, while for Berger Paints it has been increased from ₹515 to ₹650. The brokerage firm believes that investing in these companies has now become attractive due to the return of demand in the market and better valuations.
Sluggishness in the last two years, now recovery is visible
The paint sector had faced sluggishness in the last two years, but now signs of recovery are emerging. ICICI Securities' report states that demand in this sector has started to increase again. Along with this, new players like Birla Opus are also investing aggressively in this sector. According to the report, Birla Opus has already spent about 95 percent of its fixed budget, which indicates that companies are serious about this sector.
Expectation of strengthening in earnings margin
According to the report, the operating margins of paint companies are currently at the lower end of their guidance. However, the brokerage believes that there is less possibility of a decline in the current circumstances and more hope for improvement. Companies are getting relief from the stability in the prices of raw materials in the market.
Easing of oil prices is helpful
A large part of the raw material for paint companies depends on crude oil. In the past few times, the tension between Iran, Israel, and the US had caused an increase in crude oil prices. This had an impact on the cost of paint companies. However, now that global tensions have eased to some extent, crude prices have fallen below $70 per barrel. This is directly benefiting the companies' margins.
Current valuation creates an investment opportunity
In the past year, shares of Asian Paints and Berger Paints have seen a decline of 10 to 35 percent. Due to this decline, the shares of both companies are now trading one standard deviation below their historical average. In such a situation, the brokerage believes that the balance of risk and return is now in a favorable situation for investors.
Increased attraction at cheaper valuations
The race for third place in the Indian paint sector has now intensified. Companies like Birla Opus, AkzoNobel, and JSW Paints are adopting big strategies to strengthen their hold. Recently, Berger Paints MD and CEO Abhijit Roy said in an interview that the company was earlier in the race to acquire AkzoNobel India, but the deal could not happen due to valuation.
Growing interest of investors
Whenever a brokerage firm's view on a sector changes, investors' interest increases in that direction. After this new report by ICICI Securities, investors may once again turn towards companies with b fundamentals like Asian Paints and Berger Paints.
Market position of Asian Paints
Asian Paints has long been the leading company in the paint sector. The company's b brand value, extensive distribution network, and innovative product line have always kept it ahead of its competitors. Now that demand is returning to the market, Asian Paints can benefit directly from this.
Direction of Berger Paints
Berger Paints has also maintained a b presence in the Indian market. The company has strengthened its hold in both the mid-segment and premium segments. In addition, Berger has a b distribution channel in rural and tier-2/3 cities, which can support its growth in the future.
Why it is favorable for investment at the moment
The recent decline in the paint sector and the current recovery in demand indicate that this time may be favorable for investors. This report by ICICI Securities confirms that the possibility of long-term investment in b companies has now opened up again.
Eyes on the market's movement
In the coming time, the condition of the paint sector will also depend on how the prices of crude oil are in the global markets and what strategies the competing companies adopt. But for now, the signals coming from the market are positive. That is why, on July 1, investors' eyes will be especially on Asian Paints and Berger Paints.
