Asian Paints extends fall, down 7% in four days as competition flares up

Shares of Asian Paints continued its downward spiral, falling around 7 percent in the past four days as Grasim's foray into the paints business has sparked fears of increased competitive intensity in the sector.

At 11.54 am, shares of Asian Paints were trading at Rs 2,807 on the NSE.

Grasim launched its paint brand, Birla Opus, last week, which aims to attain the second position in the decorative paints market, which is currently being dominated by Asian Paints.

Not just that, Grasim also targets to achieve profitability and a gross revenue of Rs 10,000 crore within three years of commencing full-scale operations. While the bullish targets set by Grasim and an equally comprehensive strategy by the management to make it a reality has ushered optimism from the Street, it has heated things up for Asian Paints.

Even though brokerages believe Asian Paints will emerge as the industry leader after the shake-up, they also feel that it is not the guaranteed winner, hinting towards increased competition. These concerns have also triggered a flurry of downgrades and cuts in price targets for Asian Paints.

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In anticipation of an expected increase in competitive pressure within the industry, brokerage firm CLSA has downgraded Asian Paints to a 'sell' rating. Additionally, the firm also reduced their price target for the stock by close to 25 percent to Rs 2,425. Furthermore, CLSA has adjusted its earnings estimates for Asian Paints for FY25/26, lowering them by 8-10 percent.

CLSA also foresees a potential de-rating for Asian Paints, with its stock price projected to align more closely with its 15-year average multiple.

Goldman Sachs also shares the same concern and thereby reduced its price target for the stock by approximately 14 percent to Rs 2,850, while maintaining a 'neutral' call. Moreover, the firm has decreased its target multiple for the stock from the previous 58x to 52x. Additionally, Goldman Sachs has adjusted its earnings-per-stock estimates for FY25/26, lowering it by 5.2 percent and 10.9 percent, respectively.

Moreover, the stock's expensive valuations have also prompted brokerages to see limited upside in the stock from a near term perspective.

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