Grasim Set To Disrupt Asian Paints-Led Oligopoly Even As Jefferies Sees 'Uphill Task'
Jefferies also retained 'underperform' on the stock as it sees a declining trend in revenues in the recent quarter to continue.
Asian Paints Ltd.'s market share and margins are likely to be impacted by Grasim Industries Ltd.'s foray into the paint market, according to Jefferies.
Grasim Industries launched its first paint plant on Thursday and plans two more by March in its quest to become the second-largest player in the domestic market. The company unveiled Birla Opus line of paints manufactured at the Panipat, Haryana facility.
Still, it will be an uphill task for the new player to rise to the second spot and, as such, Asian Paints may stay unimpacted, Jefferies said citing feedback from investors. The 'magnitude' of investment will push other industry players to adopt aggressive policies to strengthen their position further.
JSW Paints, JK Cement Ltd., Astral Ltd., Pidilite Industries Ltd., Nippon, Kamdhenu, and Shalimar are also trying to ramp up their efforts.
Jefferies retained 'underperform' on Asian Paints as it sees a declining trend in revenues in the recent quarter to continue. "We expect this trend to continue as mix deterioration would impact despite 10% volume growth," the brokerage said.
Jefferies said that general inflation is likely to stay range-bound as Asian Paints may like to "pass on incremental benefits to consumers to prioritise growth in the context of Grasim's launch." Spending on advertisement is also expected to go up, it said.
Key Takeaways
Jefferies retained 'underperform' on Asian Paints with a price target Rs 2,500, implying a downside of 17% from Wednesday's close.
Grasim Industries' foray into the paint maker is likely to change share and margins.
Grasim Industries' aggressive try to capture the second spot is likely to propel other industry player to ramp up their efforts.
Other than Grasim Industries's foray, Asian Paints is expected to see declining revenue trend continues.
Shares of the company fell as much as 2.32% to Rs 2,932 apiece, lowest level since Feb 12. It was trading 1.01% lower at Rs 2,971.55 apiece as of 11:10 a.m. This compares to a 0.57% decline in the NSE Nifty 50.
It has risen 6.28% in past 12 months. Total traded volume so far in the day stood at 2.3 times its 30-day average. The relative strength index was at 39.48.
Out of 37 analysts tracking the company, nine maintain a 'buy' rating,13 recommend a 'hold,' and 15 suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside 11.3%.
