Nuvama bullish on Asian Paints after price hikes, sees recovery in coming quarters

Over the past year, Asian Paints shares have slipped 12 percent in trade.

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Both Asian Paints and Berger Paints have confirmed price hike of up to one percent across most of their portfolios, thus brightening business prospects for them and prompting other players who may follow suit.

With tightening competition in the paints space after Aditya Birla-led Birla Opus' entry, price hikes are likely to assist incumbents preserve margins and pave the way for premium offerings, Nuvama Institutional Equities said.

The rise in prices will give Asian Paints and Berger Paints, along with any peer that also bumps up its prices, further headroom for increased A&P spends and brand investments.

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The brokerage reiterated its buy call on Asian Paints, with a target price of Rs 3,450 per share. However, Nuvama warned that Q1FY25 is likely to be muted for the paint players. It expects recovery in coming quarters aided by Government’s focus on ‘Housing for All’ and rising aspirations.

The price hikes also mark a pronounced turn-around from the strategy of slashing prices which was implemented in FY24. The paint players previously implemented price cuts in tranches, around 3-4 percent over a few quarters.

"We believe Birla Opus can successfully coexist with established players like Asian Paints and Berger. The Indian paint industry is vast and experiences  double-digit growth, offering ample space for new entrants," said Nuvama.

Furthermore, a significant portion (around 30 percent) of the market remains unorganized, presenting a large opportunity for Birla Opus and other large companies.

Ahead of the price hikes in June, international brokerage JPMorgan reiterated its neutral stance on Asian Paints. The brokerage believed that the price/mix weakness is likely to sustain in the near-term, weighing on the topline.

Asian Paints is likely to sustain its double-digit volume growth and maintain its margin of 18-20 percent, the brokerage had said. However, the latest price hikes might infuse the outlook on the sector with more optimism.

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