ICICI Securities reverses negative outlook on paints sector after four years; upgrades Asian Paints, Berger Paints

The brokerage raised its target on Asian Paints to Rs 2,700, while the target price on Berger Paints was increase to Rs 650.

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26 Aug, 2025 12:21

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After four long years, domestic brokerage ICICI Securities reversed its negative stance on paints majors Asian Paints Ltd and Berger Paints Ltd, citing a likely turnaround in the industry.

The broking house upgraded its rating on the paint players to 'add' from 'reduce' earlier, believing that the paint industry revenue growth is likely to recover in FY26 after declining in FY25.

The brokerage hiked its target price on Asian Paints to Rs 2,700 per share, from Rs 2,000 earlier. The target on Berger Paints was raised to Rs 650, up from Rs 515.

In a note, the brokerage clarified why it gave the paints players an 'add' rating, instead of a 'buy' call. In the newer industry landscape - Birla Opus is likely to reach ~10 percent market share in three years, JSW Paints + Akzo Nobel India combined- may result in a fight for third position along with Kansai Nerolac.

ICICI Securities said, "Importantly, we do have some concerns about exit multiples for incumbents as Birla Opus, Indigo Paints, JSW Paints have proven in the last decade that consensus probably overestimated the strength of entry barriers in Paints industry."

The paint industry is expected to see a recovery in revenue growth in FY26, following a decline in FY25. The slowdown was driven by weaker demand for premium paints and reduced offtake in metros and tier-1 and tier-2 cities.

Additionally, the absence of price-led growth and the use of higher trade offers and schemes to counter rising competitive pressures impacted performance. The industry also saw some market share loss to new entrants. "As most of the issues are behind now, we model there will be recovery in paints growth from H2FY26 onwards," said ICICI Securities.

The brokerage added that after Birla Opus commenced the paints business in Q4FY24, it has reported steady growth  in revenues with every quarter. "We believe it started reporting sizeable revenues by Q3FY25 (which hurt incumbents). We believe there will be anniversary effect of launch of Birla Opus on paint industry growth by end of Q2FY26."

On the valuation front, with steep competitive pressures as well as decline in revenues and margin
contraction, the valuation multiples of Asian Paints as well as Berger Paints are below the mean P/E. While the competitive landscape has materially changed, the brokerage believes valuation contraction is largely over (for now).

At 11.45 a.m., shares of Asian Paints were quoting Rs 2,364.9, up over one percent, while Berger Paints stock gave up their intraday gains to trade at Rs 589.4, lower by 0.6 percent.

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