Is 2025 the Turnaround Year for Asian Paints After Hitting a 4-Year Low?

Many consider Asian Paints to be a must-have stock in the portfolio of any serious long-term investor who follows the buy and forget strategy, but the stock has been the worst performing Nifty stock over the last three years.

Hit hard by an industry-wide downturn due to weak consumption, margin headwinds and increasing competition from deep-pocketed companies such as Birla Opus, the neglected blue-chip stock is now nearing its four years low of Rs 2,261.

Asian Paints’ shares have dropped nearly 37% from their peak of Rs 3,590 on September 28, 2022, resulting in a market value degradation of roughly Rs 1.3 lakh crore.

Since the last four quarters, the decorative paints industry of which Asian Paints holds the majority of the domestic market has reported low volumes. Analysts have noted that despite the holiday season, volumes have probably dropped in the mid to high single digits in October and November as well.

“While paint companies raised prices by 2.5% in Q1FY25, dealers indicated that trade discounts/schemes have increased; this has resulted in negative pricing. Dealers indicated that they are passing on a large part of additional trade schemes to end consumers; yet there is no recovery in secondary sales,” said Manoj Menon of ICICI Securities.

The domestic brokerage business has a worse rating on Asian Paints, despite the fact that Birla Opus is still gaining market share despite the industry downturn since dealers are eager to adopt the newcomer as an additional paint brand.

According to Nuvama analysts, the urban slowdown, the greater base effect and competition from the Birla’s will cause Asian Paints to develop more slowly than smaller companies like Berger Paints and Indigo in the second half of FY25.

“Being a pan-India player, Asian Paints gets affected the most initially by new competition. For example, Birla Opus has entered even Big Cities. This has limited the initial impact on Berger Paints and Indigo Paints,” Nuvama said.

Following Q2 earnings, the FMCG industry as a whole, not only Asian Paints, has lagged behind. It was simpler for share prices to decline due to high valuations.

“If you have muted numbers with 1-2% growth, you can’t command that kind of PE. The competition is fierce. But there would be value at some point of time in Asian Paints as well. The stock might underperform, but it might stop falling from this level,” said Motilal Oswal’s Rahul Shah.

“My view is that in 2025, the stock will make a bottom and we will see the negatives get factored in completely into the stock price. Once Birla Opus takes the market share it wants, we will see that all existing players will again start focusing on getting back to profit. So, sometime in 2025, we will surely see Asian Paints bottom out,” says market expert Sandip Sabharwal.

A segment of the market is already forecasting that as demand increases and competitive pressure lessens, the battered blue-chip might soon become sufficiently appealing. When the base turns favorable, ICICI Securities predicts a possible reversal in industry volumes in Q4FY25 or Q1FY26.