How Asian Paints at 100 PE Taught Investors a Harsh Lesson

Of all the big, well-established companies in India, perhaps none has attracted as much attention this year as Asian Paints.

The company that makes most of the paint on our walls was back in the news recently after its stock price jumped almost 5% in a single day. This was fuelled by a report from a leading brokerage firm, which argued that the worst could be behind the company.

The report suggested that the fierce competition in the paint industry is calming down, and the new kid on the block, Birla Opus, might shift from all-out aggression to a more gradual expansion.

This leads to a simple question. Is the brokerage just trying to get attention with a positive spin, or has Asian Paints truly navigated through the toughest part of the storm?

To find a clear answer, it helps to zoom out and look at the company's long-term story. This broader view reveals some powerful lessons for every investor.

A Golden 20-Year Run

The two decades starting from the year 2000 were a golden period for Asian Paints.

The numbers are staggering. Over those twenty years, the stock soared by a cumulative 150 times. This means if you had invested a small amount, it would have become a fortune. This incredible journey can be broken down into two distinct chapters.

The first decade, from 2000 to 2010, saw the stock rise by 15 times. This wasn't just magic. The company's earnings grew 7.5 times during this period.

But that wasn't the only driver.

The market's love for the stock also grew, as reflected in its price to earnings (PE) ratio. The PE expanded from 16 times to 32 times, a doubling that supercharged the returns.

Essentially, investors were willing to pay twice as much for every rupee of earnings by the end of the decade, because they were so confident in the company's future.

By 2010, Asian Paints had become a giant. It's hard for a large ship to turn quickly, and similarly, it became more difficult for the company to grow its earnings at the same blistering pace as before.

The overall economic growth in the country was also slower. As a result, between March 2010 and March 2020, the company's earnings expanded by a still-impressive 3 times.

But the stock managed a 10-times jump in that decade. How? Once again, the PE ratio came to the rescue, expanding by another 3 times. This took the cumulative return over the full twenty years to an incredible 150 times.

Warning Signs at the Peak

This is where the story takes a turn.

The start of the third decade, from 2020 onwards, presented a very different picture. Unlike in 2000 and 2010, when the stock began its journey with relatively modest PE multiples, the new decade started with a PE ratio of nearly 100 times.

This is a critical point. A PE ratio of 100 means investors are paying one hundred rupees for every single rupee of the company's annual profit. For this to make sense, the company must grow its earnings at an extremely high rate for many, many years.

Even for a superstar like Asian Paints, this was a tall order. If that explosive growth didn't materialise, the high PE ratio was like a house of cards, vulnerable to a crash.

And that is precisely what seems to have happened as we near the halfway point of this current decade. The first four years were good. The company's profits grew by another 2 times, keeping the dream alive.

But the most recent financial year, FY25, is where things started going downhill. Faced with intense competition, the company's profits fell more than 30%. This immediately caused its high-flying PE ratio to crash down to around 65 times.

The net result of this rollercoaster?

The company's share price is now at roughly the same level it was five years ago, when this decade began. In simple terms, investors who bought at the peak have seen zero returns for five years.

At this rate, repeating the 150-bagger miracle of the first two decades looks very difficult. In fact, it would be surprising if the stock manages to even beat the broader market index by the time this decade ends in 2030.

Timeless Lessons for Every Investor

While the recent stock price rise is making some investors cheerful, and a few analysts project a turnaround, this story highlights a few timeless investing principles.

First, alarm bells should have started ringing for many when the stock's PE ratio touched 100 a few years ago.

Paying such a high price for any stock is incredibly risky. Even a blue-chip company of Asian Paints' calibre would find it nearly impossible to deliver good returns for investors who bought at that peak over the long term.

You can perhaps understand such a high PE for a tiny, fast-growing startup. But for a massive, established company like Asian Paints to consistently grow at 20-25% year after year is a huge challenge.

Second, we must remember that business is brutally competitive. Asian Paints is doing all it can to protect its turf. It's trying to improve its profit margins and diversify into new, high-growth areas.

But these strategies take time and success is never guaranteed. Competitors like Birla Opus are constantly attacking, and as the company has recently learned, such fights can leave you with a profusely bleeding nose.

The biggest problem for many investors is a habit of assuming the recent past will repeat itself far into the future. We see a company growing profits quickly for a few years and we assume it will continue forever.

In reality, the opposite is often true. The higher and faster a company grows, the stronger the chances are that this growth will slow down, or even reverse, in the future. This is a natural law of business and markets.

When investors fail to factor this phenomenon into their decisions, it often leads to poor investment performance.

So, while Asian Paints may indeed recover, start growing its profits again, and enjoy a turnaround, those investors who bought the stock at a PE of 90-100 may still not see a good return on their investment for a very long time.

The price they paid for the stock was simply too high.

The lesson from the Asian Paints story is simple and powerful. Be very careful of stocks with very high PE ratios. Be very careful. The price you pay for a stock matters just as much as the quality of the company you are buying.

Happy investing.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)