Paint stocks like Asian Paints Ltd, Berger Paints Ltd, and Kansai Nerolac are currently offering investors an opportunity for potential returns of up to 49%. Despite concerns surrounding low growth, margin pressure, and new competition from Birla Opus, these companies are undervalued compared to historical averages.
According to Systematix Institutional Equities, the March quarter is showing signs of demand revival, with factors such as deferred demand, the phase-out of base price cuts, distribution ramp-ups, and rural revitalization contributing to improved volume or value growth projections for the future.
Expert Insights on Birla Opus
In the case of Birla Opus, there is a growing momentum in the market. However, the revenue ramp-up for FY25 has been primarily driven by the initial network buildout and primary sell-in. Systematix Institutional Equities expresses concerns about the pace of network expansion in FY26, emphasizing the importance of driving repeat/secondary sales and competing with established industry players.
Systematix has maintained ‘Buy’ ratings on Asian Paints, Berger Paints, and Kansai Nerolac Paints, with target prices of Rs 2,870, Rs 625, and Rs 340, respectively. The brokerage firm favors Berger Paints in this sector due to its potential for growth and value.
Market Trends and Regional Analysis
One-year forward PE valuations for these paint stocks are currently at a significant discount to historical averages. Systematix Institutional Equities predicts a potential re-rating in the medium term as demand gradually increases and the revenue ramp-up for new entrants like Birla Opus progresses more slowly than expected.
Regionally, demand for paints is picking up slightly in the North market, with marginal improvements in the West. However, markets in the East and Central regions are relatively stagnant. The South market is still struggling due to a sluggish real estate sector affecting the builder segment. Mass-market and economy emulsions are performing better in the North, South, and partially in the West markets.
Asian Paints has experienced notable volume growth in the first quarter, particularly in the North market. Inventory levels at dealers have decreased, and pricing has remained stable with no changes since August 2024. Birla Opus has shown stronger sales momentum in the West and some parts of the North, with weaker performance in the South and East regions. Mass and economy products are selling well for Birla Opus across all markets.
In conclusion, investors should carefully consider these trends and expert insights before making any investment decisions. While the potential for significant returns is enticing, it is essential to consult with a qualified financial advisor to assess the risks and opportunities associated with investing in paint stocks.
