A double upgrade for Asian Paints from Jefferies. The international brokerage house has upgraded it to Buy from Underperform. The price target is now set at Rs 2,830 per share. This implies 13% upside for the Asian Paints share price from current levels.
According to Jefferies, several consumer firms have faced severe issues in the past few quarters on growth, competition, and margins, which weighed on the share prices. However, there is a “gradual improvement in some of the issues (demand, margin, etc.) even while others (competition) may persist.” They believe that several stocks factor in these risks and have “limited downside” now. On the other hand, they expect “a meaningful upside in case of a turn.” Jefferies named these as “contrarian opportunities in fallen angels” and includes Varun Beverages and HUL along with Asian Paints.
Jefferies on Asian Paints: Room for meaningful upside
Jefferies sees room for meaningful upside in Asian Paints in case of a turn. According to them, one of the reasons supporting this call is that within the paint sector “Grasim’s Birla Opus exerted severe pressures at a time when industry growth rates also softened along with certain management changes coupled with high input cost volatility.”
While Birla Opus will continue to ramp up, Jefferies believes that “the easy gains are already captured and expect a gradual recovery in earnings starting FY26 for Asian Paints.” As a result, they recommend a double upgrade for the stock price.
Jefferies on Asian Paints: Price/mix impact
According to Jefferies, “another challenge has been the lack of adequate product price hikes, which also impacted the industry revenue growth.” This was partially due to sharp input cost correction in certain key inputs along with mix deterioration “due to slowing premium product sales and increase in value packs or low-priced SKUs in certain cases,” they added. A few categories even saw a ramp-up in trade spending & promotions, including discounts and visibility spending.
Jefferies on Asian Paints: Tackling competition
The other key concern for Asian Paints has been rising competition, especially from Grasim’s Birla Opus. They outlined that the “incumbents in some of the categories have also faced acute competitive pressures, which have impacted different levels, including growth, market shares, ad investments, and profitability.”
As a result of all these factors, many of the stocks, including Asian Paints, have underperformed sharply. It is down over 25% from its peaks and now “offers reasonable-to-attractive risk-reward, with limited downside,” concluded Jefferies.