Top fund manager says Asian Paints shares will lose value


“Grasim is making a big foray into paints and if it starts to see a loss of Asian paints market share, which is inevitable, some margin and yield squeeze could lead to a downgrade period,” said Sanjeev Prasad, MD & Co-Head, Kotak Institutional Equities.

Asian Paints is India’s largest paint manufacturer by market capitalization. But the paint business risks losing some of its value on Dalal Street, according to Sanjeev Prasad, MD and co-director of Kotak Institutional Equities.

In an interaction with CNBC-TV18, Prasad said he thinks the stock will “go through a period of downgrading.” “If you buy Asian paintings at a 60 times price/earnings ratio, chances are you probably won’t make too much money, at least for the next 2-3 years,” he said. declared.

As an investor, you might think, what makes him say that? Well he pointed to Grasim and said: “The company is making a big foray into paints, and if it starts to see a loss of market share from Asian Paints, which is inevitable, there will be some margin squeeze and returns .”

Last year, the Aditya Birla Group’s flagship company, Grasim, announced plans to start paint production in the quarter ending March 2024. Grasim already sells Birla White, a popular brand of putty used to smooth walls before painting them. Birla White is among the top three products in the segment, including putty brands JK Cement and Asian Paints.

Earlier, global brokerage Macquarie said it saw no threat to paint industry leader Asian Paints with the entry of Grasim, as the latter needs time to build its image of Mark.

Same Kumar Mangalam BirlaAditya Birla Group chairman, said Grasim would be a very strong No. 2 over the next five years.

Prasad said Asian Paints is a fantastic company. “But buying at 60 PE (price to earnings), given all the headwinds out there, I’m not so sure one would make money here – that’s the challenge for so many stocks now,” he said.

Asian Paints has undertaken four price hikes in the past 12 months. Still, September quarter results came in below street expectations.

The company reported a 200 basis point decline in gross margin from the June quarter, but it increased 100 basis points from the same period last year. The company had previously said it wanted to keep its margin around the 18-21% mark in the medium term.

Asian Paints has planned to invest over Rs 6,750 crore over the next three years, of which Rs 3,400 crore will go towards improving capacity by more than a third.

This compares to Grasim’s plans to double investment in its commercial paint business to Rs 10,000 crore by FY25, moving it from an earlier investment of Rs 5,000 crore envisaged by FY24.

KRChoksey has a short-term positive outlook on Asian paintings. “A good monsoon is expected to help demand, especially in rural India, over the coming quarters. Despite continued rains through October, the company is seeing good holiday demand and expects ‘it will be followed by strong demand for wedding season,’ the brokerage said.

But Capitalmind founder and market expert Deepak Shenoy previously said he wouldn’t buy the stock. Sharing his reasons, Shenoy told CNBC-TV18, “Asian Paints is the most expensive paint company in the world. It would still be reasonably priced if it were to be cut in half from here. I think the corrections are fair in an environment where you have competition and higher interest rates around the world that demand a lower equity PE because you can earn more using debt Asian Paints had deep corrections earlier So I wouldn’t be a buyer at this point I think it will correct itself just because it’s been overvalued so far.


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