Asian Paints Shares Experience Sharpest Decline in Three Days, Reach Lowest Point Since November 2020
Asian Paints Shares Extend Decline for Third Session
Key Figures:
- ₹2,120: Day's low price per share
- ₹2 lakh crore: Market capitalisation
- 10.22%: Loss in March
- 23%: Loss in less than three months
- 41%: Decline from record high
- 30%: Decline from one-year high
- 50%: Surge in crude oil prices since February 28
- 2-5%: Potential price hike for paint in India in April
- ₹3,160: Target price per share by Systematix Institutional Research
- ₹3,100: Target price per share by Macquarie
Market Analysis
Shares of Asian Paints, India's leading paint and décor company, continued their decline for the third consecutive session on March 23, falling 3.40% to a low of ₹2,120 per share. This marks a sustained period of pressure since December, with the stock losing a cumulative 26.2% to date.
The decline has pushed the stock down 41% from its record high of ₹3,568 and 30% from its one-year high of ₹2,985. Rising crude oil prices, which have surged over 50% since the start of the US-Iran conflict on February 28, are negatively impacting paint companies due to the use of crude derivatives in their manufacturing processes.
Brokerage Insights
In its recent report, Systematix Institutional Research stated that paint prices in India could rise by 2-5% in April if crude oil prices remain elevated. However, the brokerage expects initial price hikes to be limited to low single digits and staggered over 1QFY27. Macquarie has also maintained its 'Outperform' rating on Asian Paints with a target price of ₹3,100.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Historical Trends
Historically, when crude oil prices climbed by 15-25% quarter-on-quarter, Asian Paints implemented staggered price hikes of 2-4%. However, the company's gross profit margins were impacted by 350-450 bps quarter-on-quarter in 1Q and 2QFY22. Despite margin pressures, the company's volume growth remained sturdy at 13-14% over 2HFY22 and FY23.
Investor Takeaway
Investors should be cautious of Asian Paints' stock due to sustained pressure and potential impact from elevated oil prices.
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