India's paint sector has been an outlier in the overall domestic space. With the slowdown in the real estate industry, most brokerages believe that the paint companies will register shortfalls in revenues.
CLSA feels otherwise, it said in its recent report that the market share of the company and margins will continue to catch momentum. The brokerage has also raised the target price to Rs 2,200 from Rs 1,900 earlier.
The brokerage's rationale is that the paints segment is witnessing a relatively quick recovery within India's consumer discretionary space. Asian Paints' in particular has come out with initiatives to drive market share gains through a widening presence in the value segment.
The company's focus on expanding distribution reach, service capabilities, and the ability to create new segments is aiding its market share gains, said the brokerage report.
On Thursday, the shares settled 3 percent higher, at Rs 2,044.05 per share on the NSE. Since March low levels, it has managed to register healthy gains of 43 percent to current market levels.
Moreover, the Nifty Realty index in the last 6 months has risen 35 percent, which brings hopes amongst investors to bet on the paints segment again.
"We now expect its FY21 volume decline to be restricted to just current.6 percent (v/s a Q1FY21 decline of current.38 percent) and for the recovery in urban demand to see a mixed benefit in FY22," the report added.
Since there has been a fair bit of negative light on this space due to the aftermath of the sinking realty index, CLSA feels that amidst the rational competition, Asian Paints' margins will continue to benefit from lower raw material prices.
Hence, the brokerage has lifted the FY21-23 EPS 5 percent-15 percent, and also raised its target price to Rs 2,200 from Rs 1,900.
First Published: Oct 1, 2020 6:59 PM IST
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