Why Asian Paints Share Price is Falling

Asian Paints have been the undisputed leader in the Indian paints industry for decades.

Its extensive distribution network, efficient processes and unmatched product quality have solidified its pole position in the paints space despite many players emerging in the years gone by that threatened to challenge its position.

The recent performance, however, might make you wonder.

Asian Paints share price has fallen close to 12% in the past three months.

Is this fall justified or is a temporary blip due to recent geopolitical tensions?

Let's find out...

#1 Escalating Raw Material Expenses

Two pivotal raw materials essential to the paint industry encompass crude oil derivatives known as monomers and titanium dioxide. The heightened cost of crude oil, a fundamental component in paint production, has caused a decline in the share prices of various paint companies.

In the past month, oil prices surged to a 9-month high due to concerns regarding supply constraints, with Brent crude approaching US$ 90.7.

This surge in oil prices has hurt the paint sector, primarily because numerous raw materials used in paints are petroleum-based.

The increase in input costs for these critical raw materials could influence the overall manufacturing expenses, consequently exerting pressure on the profit margins of top paint companies.

As a result, companies such as Asian Paints have found it necessary to raise the prices of their products, a move that has dampened consumer demand. Consequently, this price adjustment has been a contributing factor to the correction in Asian Paints' share prices in 2023 thus far.

#2 Increased Competition

Asian Paints' share price has also come under pressure after Kumar Mangalam Birla-led Grasim Industries entered the growing and lucrative Indian paints market.

Notably, when Grasim made its foray into the paints business in 2021, it announced a capital expenditure of Rs 50 billion (bn) over the next three years. Also, its first plant will commence operations in the January-March 2024 quarter.

Further, JSW paints' aggressive entry into the paints business recently has also been a headwind for Asian Paints.

Moreover, Pidilite has entered decorative paints under the 'Haisha' brand. The company has indicated that it has introduced decorative paints to complete the product portfolio on request from the dealers.

These new players are bringing with them new technologies, innovative products, and aggressive marketing strategies.

As a result, they are likely to put pressure on the margins and market share of existing players.

This phenomenon is already evident in the case of Asian Paints. The company has been witnessing a decrease in its market share over the past few years, and its profit margins have also come under strain.

#3 Weak Rural Demand

The rural demand in the Indian hinterland has shown signs of recovery, but it is yet to reach pre-pandemic levels. Moreover, high inflation levels have continued to hurt sentiments among the rural populace with regard to discretionary spending like paint.

This has resulted in lower demand for products of the company in its key rural market, which has hurt the Asian Paints share price.

What Next?

Looking ahead, the company anticipates strong revenue and profit growth due to the robust demand during the festive and wedding seasons.

The construction industry in India is poised for substantial expansion, propelled by government initiatives like the 'Housing for All' scheme and heightened infrastructure investments. This surge is expected to create a significant demand for paints, benefiting residential and commercial projects.

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

The passing away of non-executive director Ashwin Dani posed some management challenges and the stock had declined reacting to the development. He played a pivotal role in the company's operational expansion.

How Asian Paints Shares have Performed Recently

In the past year, shares of the company have been trading 1% lower.

On a year-to-date basis, Asian Paints has gained 1.9 % while in the past month, shares are down 3%.

The company touched its 52-week high of Rs 3,568 on 24 July 2023 and its 52-week low of Rs 2,685 on 27 January 2023.

About Asian Paints

Asian Paints is one of India's most well-known and finest 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

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...