Why Asian Paints Share Price is Falling

Asian Paints, a powerhouse in the Indian paint industry, boasted a remarkable 25.4% CAGR since its listing in 1999, from Rs 11.8 to Rs 3,402 as of 31 December 2023.

So, if one had put Rs 10,000 into Asian Paints at the beginning of 1999, the investment would have burgeoned to approximately Rs 1,070,670 by the end of 2023.

Despite its historical success, Asian Paints and its counterparts, such as Berger Paints and Kansai Nerolac, have experienced a downturn, with declines of up to 5% on Monday.

Asian Paints, in particular, has borne the brunt of these losses. Asian Paints share price is currently trading near its 52-week low.

What's causing this dip?

Increased Competition

Leading paint manufacturers lost sheen following concerns over increased competition in the industry after the entry of Aditya Birla group firm's Grasim Industries in the decorative paints segment.

Grasim Industries has entered the paints sector with the much-anticipated launch of its Birla Opus range of products. This can reshape the dynamics of the sector by intensifying competition.

Through the launch of Birla Opus, Grasim aims to secure the second position in the decorative paints market, currently dominated by rival Asian Paints.

The biggest cause for concern for the paint makers has been its Rs 60 bn capex. Grasim Industries has tapped major advertising firms to market the product and may also tap into their pre-existing distribution network for offerings like Birla White and UltraTech Cement.

With 25-30% of the paint market in to the unorganised sector, Birla Opus is poised to capture a significant share. Even well-established players are expected to feel the impact of the heightened competition.

For paint manufacturers, the increased competition could affect both volume growth and margins. Pressure on profitability is anticipated as other paint companies ramp up advertising and promotion expenses along with increased spending on distribution and trade incentives.

Further, the company aims to reach a gross revenue of Rs 100 bn within three years of commencing full-scale operations. Grasim has already invested Rs 100 bn upfront and commissioned three plants in Panipat, Ludhiana, and Cheyyar in Tamil Nadu.

The Aditya Birla Group company had raised money twice in calendar 2023 to fund the paints venture. The forecast implies it expects to recoup its investment in the form of revenue by 2027.

The Aditya Birla Group company had raised money twice in calendar 2023 to fund the paints venture. The forecast implies it expects to recoup its investment in the form of revenue by 2027.

This robust expansion plan has further added concerns about rising competition in the sector.

What Next?

The demand from real estate is expected to be robust in FY24 on expectations of significant project completion and increased government spending on affordable housing and infrastructure, which accounts for about 70% of the total paint demand in India.

The government's recent announcement on building two crore affordable houses over the next five years under the PM Awas Yojana (Grameen), in addition to the three crore houses already under implementation, translates into continued demand momentum, encouraging new players to bet on the sector.

The residential housing sales are expected to increase by 10% in the top 15 cities during CY2024.

Demand from repainting, which accounts for 80% of the total decorative paint demand, is also expected to pick up due to factors such as a growing population, an increase in rental homes, and growth in the income levels of consumers.

Furthermore, the recent decline in inflation is likely to bring relief to consumers and businesses, potentially leading to increased expenditure on paint products.

How Asian Paints Shares have Performed Recently

In last five days, shares of the company have been trading 5% lower.

On a year-to-date basis, Asian Paints has lost 15% while in the past month, shares are down 4%.

The company touched its 52-week high of Rs 3,568 on 24 July 2023 and its 52-week low of Rs 2,709 on 3 April 2023.

About Asian Paints

Asian Paints is one of India's most well-known paint companies.

Founded in 1942, it's also India's largest paint company. It also produces varnishes, enamels, or lacquers, surface preparation, organic composite solvents, and thinners.

The firm has business in 15 countries and has 26 paint production sites worldwide, serving customers in over 60 nations. It sells its products under numerous names such as Apcolite, SCIB, and Causeway Paints.

The firm is also well known for its supply chain approach. Its supply chain is critical to its competitiveness by offering flawless product quality and exceptional service while keeping prices down.

We will have to wait and watch how Grasim's paint business works out and how it competes with its peers.

Till then, you can compare Asian Paints with its peers:

Asian Paints vs Berger Paints

Asian Paints vs Shalimar Paints

Asian Paints vs Indigo Paints

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