Asian Paints shares get double upgrade from Jefferies with Rs 2,830 target price
ADVERTISEMENT In its latest report, Jefferies flagged Asian Paints as one of its top contrarian picks alongside Hindustan Unilever and Varun Beverages, citing scope for 'a cyclical upturn in fundamentals' and arguing that 'while downside appears limited, there is meaningful upside in the event of a turnaround.'
'Grasim's Birla Opus exerted severe pressures at a time when industry growth rates also softened along with certain mgmt. changes coupled with high input cost volatility,' the brokerage noted. However, Jefferies said the competitive landscape is stabilising, adding that 'while Birla Opus will continue to ramp-up, we believe that the easy gains are already captured and expect a gradual recovery in earnings starting FY26 for Asian Paints.'
Asian Paints' stock has underperformed the Nifty 50 significantly since early 2021, delivering a negative return of 15% versus an over 82% gain in the benchmark index. According to Jefferies, the last few years have been marred by raw material price volatility, subdued demand, increased trade spending, and management churn.Now, the brokerage expects 'a normalisation in gross margin,' supported by stabilising input costs, a more gradual pick-up in Birla Opus growth after FY25, and expected improvement in consumption driven by government support measures and a good monsoon.
ADVERTISEMENT 'So, overall, while we believe that some of the challenges will likely persist for next few quarters, the worst may be behind,' Jefferies said.Despite the near-term challenges, Jefferies believes the stock offers favourable risk-reward. Asian Paints is currently trading at a one-year forward price-to-earnings multiple of 50x on depressed earnings, which is one standard deviation below its five-year average.
ADVERTISEMENT The brokerage sees volume growth in the company's domestic decorative segment gradually rising to high single digits over the next three years, with consolidated revenue and EBITDA projected to grow at a CAGR of 8% and 11% respectively through FY28. Gross margins, which had dipped below 40% due to pricing pressures and higher input costs, are expected to improve steadily.'We do highlight that none of the above names are cheap by any stretch of imagination, but we see a potential for a cyclical upturn in the fundamentals, which should drive up share price,' Jefferies said.
ADVERTISEMENT For investors, the upgraded call signals renewed confidence in Asian Paints' ability to regain its footing amid evolving industry dynamics and easing macro pressures.
Asian Paints shares were trading 1.7% higher on Wednesday at Rs 2,527.70 on the BSE.
ADVERTISEMENT Also read | Asian Paints shares see Rs 7,700 crore block deal, stock up over 2%
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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