Code green: Paint stocks surge as crude slides to January lows 

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Shares of Asian Paints, Kansai Nerolac, Indigo Paints, Akzo Nobel and Berger Paints gained 2-4 percent in the first hour of trade on Thursday as crude prices dropped below $85, for the first time since January. Asian Paints was among the top gainers on the NSE and BSE, surging close to 2 percent.

As per estimates, crude derivatives form about 40 percent of raw material costs for large paint companies. With crude oil prices easing from highs, paint manufacturing costs will be lesser and margins will be higher, explain experts.

On Wednesday, oil tumbled on fears of recession and global demand concerns, with Brent crude futures settling down $4.83 to $88 a barrel, falling below $90 a barrel for the first since February 8. WTI crude settled down by $4.94, or 5.7 percent, to $81.94, its lowest since January.

Analysts remain largely bullish on the sector. ICICI Direct has a ‘buy’ call on Asian Paints with a target price of Rs 3,740. “The share price of Asian Paints is in a well-established secular uptrend and has generated stable returns for long-term investors on a consistent basis over the past many years,” the brokerage firm said in its report.

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Meanwhile, Sharekhan has a ‘Buy’ rating on Indigo Paints with a target of Rs 2250. “Key input prices (including emulsion monomers, titanium oxide & packaging material) have corrected from highs and company will continue to see sequential improvement in the gross margins in the coming quarters,” the latest Sharekhan report said.

When it comes to Kansai Nerolac, Geojit Financial Services recommends an ‘accumulate’ rating with a target price of Rs 567. ICICI Securities has an ‘add’ call on Akzo Nobel with a target price of Rs 2,050.

On the business side, the companies are hiking prices every quarter to offset the raw material cost inflation has caused since the Ukraine–Russia war erupted. Berger Paints is looking to take a 1.5-2 percent price hike across product categories in early September, while Kansai Nerolac’s management is also looking at raising prices in the industrial segment.

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