HomeBusinessPaint stocks: Paint stocks may be due for re-rating soon

Paint stocks: Paint stocks may be due for re-rating soon

Mumbai: Stocks of Indian paints producers are more likely to outperform on expectations of sturdy revenue progress over the medium time period, led by quantity growth and price hikes in response to inflationary raw material costs, stated analysts.

The progress will primarily be led by the shortening of the repainting cycle, housing demand, conversion from ‘kutcha’ to ‘pucca’ homes, and elevated funding in infrastructure, they stated.

“We expect demand momentum to remain robust over the medium term with organised players with strong brand equity gaining share,” stated Gaurang Kakkad, analyst at Haitong International. “FY23 will see a strong recovery in gross Ebitda margins on account of price hikes in December quarter and will aid Ebitda and profits growth, as margins come back largely to FY21 levels.”

Despite the Covid-induced lockdown, the paints sector rebounded strongly, reporting sequential restoration since June 2020. However, most paint firms underperformed the benchmark within the final three months. Stocks corresponding to Asian Paints, Berger Paints, Kansai Nerolec, and Indigo Paints are more likely to see re-rating in coming weeks, stated analysts.

India is basically an ornamental paints-dominated business, accounting for 74% in worth phrases and 89% in quantity phrases. The organised sector has round 75% market share, and the unorganised sector holds the remaining 25%. The share of unorganised gamers has been on a downtrend due to challenges confronted by smaller gamers within the type of demonetisation, implementation of the Goods and Services Tax, and Covid-led disruptions.

Paint firms hiked costs by about 20% final yr due to inflationary stress on uncooked materials value and help margins.

“We expect a strong demand trend to continue in the December 2021 quarter supported by festival season and pre-buying activity by dealers in expectation of further price hikes,” stated Vinod Nair, head of analysis, Geojit Financial Services. “Similarly, the second half of FY22, the demand from tier 1 and 2 cities are likely to remain healthy compared to tier 3 and 4 cities, which will contribute to improvement in product mix.”

Over FY14-19, India’s GDP grew at a compounded annual fee of seven.1%, whereas the paint business grew 1.5 occasions quicker at 11% CAGR over the identical interval. Historically, the Indian paint business quantity progress is normally 1.5-2 occasions India’s GDP progress fee. The optimistic correlation between quantity progress and GDP is basically due to comparable macro components like rising revenue ranges, an uptick in financial exercise, rise in infrastructure spending, stated analysts.

According to Vishal Gutka, an analyst at PhillipCapital, Asian Paints will report bumper quantity progress of 25%-plus within the December quarter aided by market share features, premiumisation traits, seller up-stocking due to large value hikes that befell in the midst of the quarter, and ancillary segments corresponding to putty and waterproofing exhibiting stable traction.

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