JPMorgan believes that an improvement in visibility of volume and revenue growth will be crucial for Asian Paints to reverse its underperformance.
The brokerage has an “underweight” rating on Asian Paints with a price target of ₹2,300, which implies a potential upside of 5.5% from Monday’s closing levels.
India’s leading paint companies saw flat to low-single-digit volume growth during the December quarter, with the exception of Berger Paints, due to a muted consumption environment, a shorter festive season and a scale up of the new entrant Birla Opus, who now has a mid-single-digit market share in the industry, according to JPMorgan.
The foreign brokerage further said in its note that primary paint sales were further impacted by trade de-stocking and high channel discounting, amidst demand uncertainty and a sustained competitive intensity.
Pricing should start to get better as price cuts are lapped up going forward, according to JPMorgan.
While the brokerage recommends staying on the sidelines for Asian Paints, it is constructive on stocks like Pidilite, where it has an “overweight” rating.
19 out of the 40 analysts who have coverage on Asian Paints now have a “sell” rating on the stock. 10 of them have a “buy” rating, while 11 have a “hold” recommendation. Consensus estimates of price targets imply a potential upside of 11% on the stock.
Shares of Asian Paints ended little changed on Monday at ₹2,180. The stock has now corrected 36% from its recent peak of ₹3,394.
