Crude Oil Price Surge Sparks Concerns of Paint Price Increases, Analysts Remain Optimistic on Asian Paints and Berger Paints
Crude Oil Price Surge and Impact on Indian Paints Sector
Market Update
The international crude oil price has surged to near $100 per barrel level, driven by escalating tensions in the US-Iran war, causing supply disruptions and concerns of imported inflation in India. The Brent crude oil price increased by 6.6% to $98.04 per barrel, while the US West Texas Intermediate (WTI) crude futures jumped 6.37% to $92.80. However, oil prices are still below the recent high of near $120 per barrel touched earlier this week.
Impact on Paints Sector
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
The paints sector is likely to face the heat of higher energy prices, with paint companies potentially needing to raise prices to maintain their EBITDA margins. Analysts estimate that crude oil prices at $80, $100, and $120 would necessitate a price hike of 7.5%, 21.5%, and 35.5% for Asian Paints to maintain its EBITDA margin at 18%. The sharp surge in crude oil prices is posing a near-term headwind for the Indian paints sector, where crude derivatives constitute roughly one-third of total input costs and over 60% of raw materials.
Company Analysis
Berger Paints India is preferred by Systematix due to its consistent growth outperformance and momentum across decorative and industrial segments. Asian Paints has positive pricing power in the current environment, but the brokerage firm awaits industry demand acceleration before turning more positive. Systematix has a 'Buy' call on Berger Paints shares with a target price of ₹570 apiece and a 'Buy' rating on Asian Paints with a share price target of ₹3,160 apiece.
Top Picks
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Top picks by ICICI Securities in the paints sector are:
- Akzo Nobel India: Add, Target Price: ₹3,200
- Asian Paints: Add, Target Price: ₹3,000
- Berger Paints: Add, Target Price: ₹525
- Indigo Paints: Buy, Target Price: ₹1,200
- Kansai Nerolac Paints: Add, Target Price: ₹250
Investor Takeaway
Investors should be cautious of potential price increases in the paints sector due to rising crude oil prices.
More in Economy
Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
MoSPI Releases Uniform Norms for DDP Estimates with 2022-23 Base Year
