Synopsis: HSBC flags rising cost inflation in the paint sector and cuts target prices by up to 10.4%, maintaining a hold view on Asian Paints and Berger Paints amid potential margin pressure from higher input costs.
Global brokerage HSBC has taken a more cautious view on India’s paint sector, moving from a period of “cost calm” to what it now calls growing “cost concern.” With input costs starting to rise again, the brokerage has reduced target prices for Asian Paints and Berger Paints by up to 10.4%, while keeping a “Hold” rating as margins may come under pressure.
A major concern for the sector is the rising cost of crude-linked raw materials such as solvents and resins, which account for 40–60% of total input costs. With crude prices climbing amid Middle East tensions, paint makers could face margin pressure. However, given intense competition, companies may initially hold prices steady before considering gradual price hikes.
Return of Cost Pressures: Inflation is gradually making a comeback in the industry after nearly four years of cost calm. The cost of energy, transportation, and raw materials is once again rising for businesses. This strains profit margins and compels companies to reconsider pricing while being cautious not to drive away customers.
Price Hikes to Support Revenue Growth: Many businesses may begin gradually raising prices in order to address growing expenses. The previously widened gap between volume growth and value growth may be narrowed by these price increases. Slight price increases can sustain revenue growth even in the absence of a significant increase in product sales.
Different Competitive Environment: At the same time, the market today looks very different from previous inflation cycles. Competition has intensified, and consumer preferences have evolved. Because of this, companies and analysts are looking at past cycles to better understand how pricing decisions could affect sales volumes, margins, and overall performance this time around. Paint Stocks that received target cuts from HSBC
Asian Paints Ltd
Asian Paints is the largest home decor company in India. The 80+ year old company has major brands like Asian Paints, Apco, etc under its umbrella. The co. is into wall paints, wall coverings, waterproofing, texture painting, wall stickers, mechanized tools, adhesives, modular kitchens, sanitaryware, lightings, soft furnishings, and uPVC windows.
With the market capitalization of Rs 2,19,320 crore, the shares of this company opened at Rs 2294.95 per share, from its previous day’s close of Rs 2280.65 per share. The global brokerage HSBC has put a “hold” rating, cutting its target price by 10.4% from Rs 2,900 to Rs 2,600 per share.
Berger Paints India Ltd
Berger Paints India Ltd is a leading, Kolkata-based, second-largest paint company in India, established in 1923, offering a wide range of decorative and industrial coating solutions. With over 16 manufacturing units in India and a massive network of dealers, it operates internationally in Nepal, Bangladesh, Poland, and Russia.
With the market capitalization of Rs 51,343 crore, the shares of this company opened at Rs 440.50 per share, from its previous day’s close of Rs 436.80 per share. The global brokerage HSBC has put a “hold” rating, cutting its target price by 7.4% from Rs 540 to Rs 500 per share.
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