Why are LIC and Raamdeo Agrawal bullish on Asian Paints; Is it a good contra bet?


The Indian paint industry is a thriving sector driven by rising urbanization, infrastructure development, and increasing disposable incomes. With a market size exceeding ₹70,000 crore, it is growing at a CAGR of 10-12%, supported by demand from both decorative and industrial segments. The decorative paint segment dominates, comprising 75% of the market, fueled by housing and renovation projects. 

Top players include Asian Paints, the market leader known for its extensive product range and innovation; Berger Paints, recognized for strong regional reach; Birla Opus, gaining prominence with eco-friendly offerings; and Indigo Paints, known for differentiated products like floor and roof coatings. With government initiatives in housing and infrastructure, rising rural penetration, and premiumization trends, the sector offers significant growth potential. 

Market Analysis 

As per the market research reports the Indian paint industry is expected to grow by close to 10% CAGR from 2024- 2029. Historically, the growth rate of the paints sector has exhibited a ~2x co-relation to India’s GDP growth (Presently 7%). In the last few years, the paint industry has outpaced the growth rate of the overall industry. Going by the metrics, the following is the current share of different market players. 

Reasons for Share Correction 

Asian Paints’ stock has corrected significantly from ₹3,394 to ₹2,385, a level seen in December 2020, driven by several key factors. Slower demand in both urban and rural markets has reduced growth prospects. Additionally, volatile crude oil prices have increased input costs, shrinking margins and pressuring profitability. The overall economic slowdown has also dampened consumer spending, further affecting demand for decorative paints. 

Increased Competition and Economic Challenges 

The entry of Birla Opus into the premium paint segment has intensified competition, which has led to pricing pressures and potential loss of market share. Slower urban economic growth has also negatively impacted discretionary spending, further straining demand in key markets. These combined factors have contributed to the stock’s decline, as investors remain cautious amidst reduced growth expectations in the short term. 

Asian Paints Q2 FY25 Performance 

Asian Paints reported a sharp 42.4% decline in net profit for Q2 FY25, falling to Rs 694.64 crore compared to the previous year of Rs. 1,232 crore. Net sales were down 5.3% from 8,479 crore, totaling Rs 8,003.02 crore, primarily due to weak demand, exacerbated by extended monsoons and floods in certain regions. 

Urban centers faced significant stress, while rural performance was relatively better. The company also saw a decline in its decorative paints business volumes, down by 0.5%.

Despite these challenges, Asian Paints expanded its retail footprint to over 1,67,000 touchpoints and scaled its Beautiful Homes Painting Services. The company focused on product innovation, with new products contributing 12% to overall revenue. 

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Why are LIC and Raamdeo Agrawal Bullish on Asian Paints? 

LIC’s Increased Stake in Asian Paints 

Life Insurance Corporation of India (LIC) announced that it had increased its stake in Asian Paints to 7% through open market purchases, at an average cost of ₹2,891.25 per share. LIC stated that its shareholding in Asian Paints had risen from 5.001% to 7.010%, and this acquisition was in line with its investment strategy, conducted as part of the ordinary course of business. This move signifies LIC’s confidence in the company’s long-term growth potential. 

Raamdeo Agrawal’s Strategy on Asian Paints 

Veteran investor Raamdeo Agrawal shared that he was now following his “bruised blue chips” theory, focusing on investing in quality large companies when they face temporary challenges. He pointed to Asian Paints, which had seen a near 30% decline in its share price, as a prime example. Agrawal admitted that he had missed previous opportunities to invest in the company but expressed confidence that this time, he would benefit from the investment. 

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Share Price 

The shares of Asian Paints are currently trading at Rs. 2,415 up by 1.07% from its previous close of Rs. 2,388.9 as of December 11, 2024. During the intraday trade, the stock also touched an intraday high of Rs. 2,428. 

Future Outlook of Asian Paints 

The future outlook for Asian Paints remains cautious due to challenging demand conditions, with limited recovery expected in Q3 despite the wedding season boost. However, adequate monsoons and anticipated government spending should drive recovery in rural demand during Q3 and Q4. 

The company is focusing on strengthening its core brand and scaling its industrial businesses. While raw material prices may soften, volatility in crude and other key inputs remains a concern, particularly in key international markets like Asia and Africa. 

Conclusion 

Asian Paints stands at a critical juncture, navigating economic headwinds through strategic focus on brand strengthening, product innovation, and expanding retail presence. While short-term challenges persist, the company’s robust market position, potential rural demand recovery, and investor confidence suggest resilience. The paint industry’s growth potential and Asian Paints’ adaptability offer promising long-term prospects amid current market complexities. 

Written By: Dipangshu Kundu

Disclaimer

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The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

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