Today's Opening - 2,958
Today's High - 2,966
Today's Low - 2,930
Today's Closing - 2,940
Technical Indicators:
The 2-day Relative Strength Index has largely remained below 50 since 16th Sep.
The closing has been below the 5-day Exponential Moving Average since 17th Sep.
The 12, 26-day Moving Average Convergence Divergence has been negative since 19th Sep.
The 10-day Momentum has been negative since 23rd Sep.
The Negative Directional Index has been stronger than the Positive Directional Index since 25th Sep and the two indices have only been moving parallelly with no signs of diverging or reversing.
The 20-day Commodity Channel Index has been negative since 25th Sep.
Only four positive closings since 30th Sep with dropping volumes. Negative closing with low volumes is an encouraging sign for the stock.
The 10-day Rate Of Change has been negative post 30th Sep.
Industry Background:
Paints and coatings are utilized in the architectural, automotive, wood, industrial, transportation, and packaging industries. They are intended for several applications, such as corrosion resistance, damage prevention and decorative reasons.
The paints sector is broadly classified into two segments - decorative and industrial. Exterior and interior wall paints, enamel and ancillary products and wood finishes make up the decorative segment. Automotive, powder and protective coatings sum up the industrial segment. Indian market is dominated by decorative segment accounting for about 75% of the market share compared to industrial segment which has the remaining 25% share.
As of 2023, Asian Paints leads the decorative market segment, while the industrial segment is led by Kansai Nerolac. On an overall basis, Asian Paints has a market share of 59%, followed by Berger Paints at 18%.
Stock Outlook:
I am writing on this stock for the first time ever.
The stock has been in a bear phase since 31st July 2023. After losing 18% over the past 15 months, the stock is currently trading at a three month low with 2,885 acting as the support level. The stock has immediate resistances at 2,996 and 3,028 levels.
I recommend buying this stock on dips with a long-term view. Crude oil is a key input for paints industry and while crude has dropped from a lifetime high of USD 133 on 8th March 2022 to USD 72 now, the ongoing geopolitical disturbances and therefore uncertainty over crude price in the medium term is keeping price of this stock under check.
Slowdown in real estate & construction, slowing growth in automotive industry and stringent environmental regulations regarding Volatile Organic Compounds (VOC), are the other current negatives for the paints industry.
However, just like classical FMCG products (of HUL, ITC, Dabur, etc.), home improvement and therefore improving quality of life are increasingly becoming basic necessities and not part of the discretionary spending anymore. Thus, paints is moving out of voluntary spending category and with Indian economy largely poised to do well over the next 5 years atleast, paints & coatings industry is expected to grow with a CAGR of 9.4% over the next five years and Asian Paints will be a key beneficiary of this trend.
The possible growth in market is attributed to factors such as increasing urbanization, rising disposable incomes, and a growing demand for both aesthetic and protective coatings.
The Indian paints industry is anticipated to remain fiercely competitive, prompting the newer players like Indigo and Opus (AV Birla) to focus on strategies such as product differentiation, market expansion and innovation.
Last one year stock returns of Akzo Nobel (Dulux) and Indigo Paints are 87% and 20%, respectively versus negative 1.9% for Asian Paints. Nevertheless the annual sales of Asian Paints, Akzo Dulux and Indigo are Rs 35,500 cr, Rs 4,000 cr and Rs 1,300 cr, respectively. Similarly, the market caps of the three companies are Rs 2.82 lac cr, Rs 4,500 cr and Rs 1,700 cr, respectively. Hence, the scale of Akzo Nobel and Indigo are no comparison to Asian Paints.
Thus, I believe Asian Paints is a good stock to buy at the current levels with a price target of Rs 3,565-3,570.
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