Asian Paints shares buy or sell? Long-term growth intact but wait for better entry price

Shares of Asian Paints surged 1.3% on Wednesday morning to trade at Rs 1,986 per share. With this the stock has now gained over 4% in a one-month time frame. The company, which is a leader in the paint industry, has now launched its own range of furniture, furnishing and decorative lighting under the ‘Beautiful Homes’ brand as its omnichannel identity in home décor. Although analysts believe that the company is well positioned to build the home decor business into a strong vertical, however, the entry price of the stock does not augur well with some. 

Asian Paints shares have recovered from the March lows as well as their May lows. Since March the stock is now up over 32%. “We believe APNT is well-positioned to build large home decor solutions and construction chemicals portfolios; these businesses would not move the needle on growth for 2-3 years but are sizable opportunities from 5-10 years’ perspective,” said brokerage and research firm Kotak Securities in a recent report. The report said that Asian Paints has for long aspired to be a home decor solution provider but has not stepped up on the capital allocation front. “It is worth noting that Asian paints would generate operating cash flow of Rs 100 bn+ over FY2021-23E with modest capex requirements in the core decorative paints,” the report said. 

Data from Refinitiv shows that Asian Paints has 18 Buy calls from analysts and 7 Hold calls, along with 7 Sell calls. In the last 3-months the stock has given investors returns of over 15% and in the last one year the returns have been just less than 10%. Comparatively, Berger Paints has helped investors pocket 15% returns in 3-months and 33% returns in the last one year. For Asian Paints, decorative paints contribute ~75% revenue and the balance contribution is from industrial paints, said Amarjeet Maurya – AVP – Mid Caps, Angel Broking. “Going forward, we expect APL to report healthy revenue recovery due to leadership position, strong brand, wide distribution network and healthy operating margins,” he added. 

With demand recovering, global brokerage and research firm CLSA believes that rural recovery for Asian Paints has been strong. CLSA says that the volume decline for Asian paints will now be restricted to 6% while margins for the company could increase with lower raw material prices benefiting the company. CLSA has an outperform rating with a target price of Rs 2,000 per share based on higher earning estimates. 

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)