Shares of Asian Paints have been under pressure this year owing to a sharp rise in crude oil prices and dwindling demand due to soaring inflation.
Till September 8, the stock is just two per cent up in the current calendar year so far, broadly in-line with the equity benchmark Sensex which is up slightly above 2%.
The stock hit its 52-week high of ₹3,588.05 on January 10, 2022, and is now 4% down from that level. However, the stock has been gaining since July on a monthly basis.
Now, as crude oil prices have eased and central banks are raising rates, inflation is expected to cool down. The economy is also showing signs of improvement. Considering all this, can this stock see healthy gains?
We talked to analysts and here's what they say:
Fundamental views
Analyst: Antu Thomas, Research Analyst at Geojit Financial Services
A fall in oil prices by 29% from the recent high and superior volume growth (more than 37% YoY) in Q1FY23 supported the Asian paint stocks' rally.
The current deflationary trend in raw material prices will be reflected in margins from H2FY23.
"We expect volume to continue to grow at double-digit due to expansion in the dealer network, upcoming festival, and marriage season. Consistent volume growth and market share gains will help the company achieve revenue and PAT CAGR of 15% and 29%, respectively, over FY22-FY24E," said the analyst.
"We have a positive view of the company as its long-term story remains intact. However, given the recent rally, the stock is currently trading at a P/E 69 times (one-year forward), and opportunities arising from price correction can be used to add the stock from a long-term investment perspective," said the analyst.
Analyst: Harsh Sheth, Research Analyst, HDFC Securities
On a three-year basis, Asian Paint has outperformed industry growth by reporting a strong volume CAGR of 20% driven by market share gains, dealer additions and strong demand traction in tier II and tier III cities.
While the worst phase of margin pangs may be behind the industry, future price hikes are likely to be measured to avoid testing demand elasticity. Hence, GMs are likely to be lower than in history in the near term.
Asian Paints has delivered 12% earnings CAGR over the past five years, while the stock price has delivered 24% CAGR, implying a significant re-rating.
"With the entry of conglomerates including Grasim and JSW and their aggressive ambitions, the overall industry may see a shift in demand and margin structure with heightened competition. We remain cautious about the paints sector as it may likely witness de-rating. We have a sell rating on the stock with a target price of ₹2,700 (50 times June-23 P/E)," said the analyst.
Technical view
Analyst: Jigar S. Patel, Sr. Manager - Equity Research, Anand Rathi Share and Stock Brokers
On the weekly chart, the counter is near its historical tops which is also the resistance level of approximately ₹3,550-3,575.
Over the last two months approx., the stock has seen a 38.5% appreciation. If one is already holding, one should book profits between ₹3,500-3,550 levels.
On the technical front, on August 8, 2022, a bearish Harami candlestick pattern appeared on the weekly scale followed by a Shooting Star which is hinting toward a short-term pause and possible pullback.
Last but not the least, MACD on the weekly scale is overstretched which is an anomaly for current price action which is near said resistance levels. "Fresh buying at the counter is not advisable at the current market price," said the analyst.
Analyst: Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher
The stock is in a strong uptrend on a larger time frame. It made an all-time high of ₹3,590 in January 2022. Thereafter it started correcting. The short-term trend is sideways. The stock has given a breakout above channel a few weeks back and was re-testing the breakout level.
"We expect the stock to move up and break above prior all-time high to reach upper channel level around ₹3,900. The cross below ₹3,225 will negate the above expectations," said the analyst.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
