Why Asian Paints Share Price is Falling

Benchmark equity indices took a sharp dive on Thursday, with the Sensex dropping over 1,250 points and the Nifty50 falling below the 25,500 mark.

This decline followed a broader trend across Asian markets, as investors grew increasingly risk-averse amid rising tensions in the Middle East.

The total market capitalisation of all listed companies on the BSE shrank by Rs 5.6 trillion (tn), reducing it to Rs 469.2 tn.

Investor concerns escalated after Iran launched ballistic missiles at Israel earlier in the week, heightening fears of further conflict.

The oil & gas and paints sectors were hit the hardest, with stocks in both categories dropping over 5%. Among them, shares of Asian Paints saw an intraday decline of nearly 4%.

Here's a closer look at the factors driving the selloff.

#1 Rising Crude Oil Prices

Shares of Asian Paints fell sharply as rising crude oil prices hit investor sentiment, given the company's significant reliance on petroleum-based raw materials.

International crude oil prices jumped 3% earlier this week amid escalating tensions in the Middle East due to the Israel-Iran conflict. Brent crude was up 84 cents (1.14%) at US$ 74.4 per barrel, while US West Texas Intermediate crude rose 87 cents (1.25%) to US$ 70.7 per barrel.

Back home, crude oil futures on the Multi-Commodity Exchange (MCX) traded 2.8% higher at Rs 5,900 per barrel.

Concerns grew after Iran fired more than 180 missiles at Israel, prompting fears that retaliation could target key oil-producing facilities, leading to supply disruptions.

On Wednesday, Iran announced that its missile attack on Israel had concluded, unless further provoked. It also warned that any Israeli retaliation would result in widespread destruction.

In the event of an attack on Iran's oil infrastructure, Tehran could potentially retaliate by targeting Saudi oil facilities, as it did in a similar strike on crude processing facilities in 2019.

For companies like Asian Paints, crude oil prices are a critical factor in production costs. The decorative paint industry is highly raw material-intensive, and more than 300 items used in the manufacturing process are petroleum-based.

With raw materials accounting for 55-60% of total input costs, any rise in oil prices directly impacts profitability.

Crude oil price increases also drive up the cost of producing essential components like titanium dioxide, a key ingredient in paint formulations.

As crude prices continue to climb, it becomes increasingly difficult for paint manufacturers to maintain their gross margins.

This dynamic explains why shares of Asian Paints tumbled nearly 4% in intraday trading.

#2 Other Factors

Another contributing factor to the decline in Asian Paints' share price is the reported weak demand for paints and adhesives in the second quarter.

Market reports highlighted that erratic monsoon patterns significantly affected paint demand, especially in September, leading to softer sales for the industry.

Additionally, increased competition is on the horizon with JSW Paints planning a capital expenditure of around Rs 9 billion (bn) over the next two years and gearing up for an IPO in the next 3-5 years.

Adding to the competitive pressure, Grasim Industries has entered into the paints sector with the launch of the Birla Opus range of products.

This move could reshape the competitive dynamics of the sector, intensifying the pressure on established players like Asian Paints.

With increasing competition from both established and emerging players, Asian Paints is facing headwinds that have contributed to the recent drop in its stock price.

What Next?

Asian Paints is looking ahead with plans that are both ambitious and well-structured.

The company is focused on maintaining healthy volume growth, having achieved a five-year CAGR of 15.3%. Despite short-term challenges, Asian Paints is confident in its long-term strategies.

The recent capacity expansion at the Mysuru plant, which doubled its capacity to 0.6 million KL, signals the company's intent to meet future demand and sustain growth.

The company's focus on innovation is also a key part of the future strategy. Products like NeoBharat Latex paint, targeting the unorganised market, have already shown promise. This strategy of expanding into new market segments is expected to boost revenues.

Furthermore, the ongoing investments in the Beautiful Homes Painting Service and other home decor initiatives, such as partnerships with well-known brands, show that Asian Paints is committed to growing beyond traditional paint products.

Further, the government has announced 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, which 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.

How Asian Paints Shares have Performed Recently

In last five days, shares of the company have been trading 2% lower.

On a year-to-date basis, Asian Paints has lost 7% while in the past month, shares are trading marginally higher.

The company touched its 52-week high of Rs 3,423 on 29 December 2023 and its 52-week low of Rs 2,670 on 10 May 2024.

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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