The shares of Asian Paints Ltd have experienced a significant downturn, plunging over 16% in the year 2023 so far. The latest blow comes as the Hong Kong-based brokerage firm CLSA downgrades the stock to ‘sell,’ citing concerns about heightened competition following Grasim Industries’ entry into the paint business. The move has sent shockwaves through the market, with CLSA reducing the target price from Rs 3,214 to Rs 2,425.
On Monday, Asian Paints’ stock dropped by more than 4.5% to Rs 2,850, pushing its total market capitalization below the Rs 2.75 lakh crore mark. This recent decline adds to a year-long slump, with the stock settling at Rs 2,984.80 on Friday and witnessing a 16% decrease from Rs 3,400 levels in the year 2024.
Industry experts point to the intensifying competition within the paint sector as a cause for concern. Grasim Industries, a newcomer to the industry, has launched its ‘Birla Opus’ brand, posing a potential threat to Asian Paints’ market dominance. Analysts predict that Grasim could become the second-largest Indian paint maker by capacity, trailing only market leader Asian Paints.
Mahesh M Ojha, AVP – Research at Hensex Securities, expresses caution, stating, “The writing was on the walls for a long time. Everyone knew Grasim Industries will disrupt the market, it’s just the fact on one wanted to digest it. We believe the next couple of years will be a challenging endeavor for the paint industry, especially as we anticipate Asian Paints to give up some market share, which can hurt their profitability as well as sales.”
The subdued performance of the Indian paint industry in the past 2-3 years, attributed to factors such as the real estate sector slowdown, rising raw material costs, intense competition, and regulatory changes, has created an environment of cautious outlooks from big brokerages.
Sonam Srivastava, Founder and Fund Manager at Wright Research, notes that the entry of Grasim Industries with its ambitious growth plans poses a potential challenge to established players. Increased competition could lead to market share battles, earnings pressure, and price wars.
Grasim Industries, having launched its paints business under the ‘Birla Opus’ brand last week, expects to generate Rs 10,000 crore ($1.21 billion) in gross revenue in the next three years. The company aims to reach break-even within this timeframe, having raised funds twice in calendar 2023 to support its paints venture.
As the industry navigates these changes, Motilal Oswal retains a positive outlook on Grasim Industries, emphasizing its focus on customer satisfaction, product quality, incentives, and swift product delivery. Despite the uncertainties, they reiterate a ‘buy’ recommendation with a target price of Rs 2,670, emphasizing the need to assess the scalability of Grasim’s operations in the evolving market.
