Synopsis: Morgan Stanley turns cautious on India’s paints sector, citing slowing growth and volatility. Key stocks face upto 13% down grade, with brokerages reiterating revised targets from previous estimates.
The Indian paints sector has historically been driven by steady demand in decorative and industrial segments. Urbanisation, rising disposable incomes, and housing growth supported consistent double-digit expansions. Major players like Asian Paints, Berger, and Kansai Nerolac have long enjoyed strong brand loyalty and competitive moats.
However, recent trends indicate a slowdown in growth and rising volatility. Input cost pressures, heightened competition, and changing consumer preferences have made performance less predictable. With companies now guiding for mid-to-high single-digit value growth, investors are increasingly focused on market share dynamics and quarterly results to gauge sector health.
Industry overview:
Morgan Stanley has turned cautious on the paints sector, citing a multi-year de-rating trend. Recent growth volatility over the past two quarters indicates that the predictability of growth is declining, challenging the historically stable performance of paint companies.
Incumbent players are now guiding for mid-to-high single-digit value growth over the medium term. This represents a slowdown from previous double-digit expansions, reflecting weaker demand and a more competitive environment. Investors should recalibrate expectations accordingly.
The combination of weakening competitive moats, subdued growth, and elevated valuations underpins the de-rating thesis. With fundamentals no longer intact, market share developments will gain prominence, making quarterly performance updates critical for assessing the sector’s prospects. Here are the stocks that were downgraded by the brokerage:
Asian Paints Ltd
Asian Paints is the largest home decor company in India. The 80+yr 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, mechanised tools, adhesives, modular kitchens, sanitaryware, lightings, soft furnishings, and uPVC windows.
With a market capitalization of Rs 2,33,276 crore, the stock opened at Rs 2,396.60 per share. The brokerage’s earlier downside target of Rs 2,194 has been revised to Rs 2,126, implying a 3 percent decline from the previous target and an 8.4 percent downside from the current market price.
Berger Paints India Ltd
Incorporated in 1923, BPIL is one of the leading manufacturers and sellers of paints and varnishes in India, with an established brand, having its presence in the decorative paint segment (~80 percent of the sales) and the industrial segment. BPIL has 29 manufacturing plants in India, two in Nepal, one each in Poland and Russia, and ~196 depots (including offices). Its decorative segment includes brands such as ‘Weathercoat’, ‘Luxol’, ‘Silk’, and ‘Easy Clean.’
With a market capitalization of Rs 54,159 crore, the stock opened at Rs 461.60 per share. The brokerage’s earlier downside target of Rs 482 has been revised to Rs 400, implying a 17 percent decline from the previous target and a 13 percent downside from the current market price.
Kansai Nerolac Paints Ltd
Kansai Nerolac Paints Limited is one of India’s leading paint companies, and holds a dominant position in industrial, automotive, and powder coatings, while ranking among the top three in the decorative segment. As a subsidiary of Kansai Paint Co. Ltd, Japan, it leverages advanced Japanese technology to serve a diverse range of industries.
With a market capitalization of Rs 16,332 crore, the stock opened at Rs 200 per share. The brokerage’s earlier downside target of Rs 212 has been revised to Rs 191, implying a 9 percent decline from the previous target and a 4.5 percent downside from the current market price.
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