Analysis of Top 4 Paint Stocks in India
Paint Industry Overview in India
In this article, we will do a comprehensive analysis of paint industry in India. Akzo Nobel India Ltd, Asian Paints Ltd, Berger Paints India Ltd and Kansai Nerolac Paints Ltd are the 4 listed biggest paint companies in India.
There is a phenomenal growth in the housing sector front with rapid urbanization and easy availability of home loans, which have become the prime drivers of growth in the decorative paint segment. Whereas, Industrial market accounts for general industrial paints, automotive coatings, powder coatings, OEM paints and others.
- Akzo Nobel India has been present in India for over 60 years and is a significant player in the paints industry. In 2008, the company became a member of the Akzo Nobel Group. It is most famous for its Dulux brand.
- Asian Paints Limited is an Indian multinational paint company having a headquarter in Mumbai, Maharashtra. The Company’s main business is manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.
- Berger Paints India Ltd is a paint company based in India. The company is having headquarter at Kolkata and has 14 manufacturing units in India, 2 in Nepal, 1 each in Poland and Russia
- Kansai Nerolac Paints Limited is the largest industrial paint and third largest decorative paint company of India based in Mumbai. It is a subsidiary of Kansai Paint of Japan.
Paint Industry in India
- The Indian paint industry is worth around Rs. 50,000 Cr.
- Till 2016, organised paint companies in India had a market share of only 65%.
The unorganised paint companies was holding the rest 35% market share.
- After GST application the paint industry too got streamlined and the organised players benefited from it. Now, the organised paint companies in India make up for the 80% market share and the rest 20% market share is distributed among the unorganised players.
- Asian Paints has the biggest market share in the industry if 41%-42%. The next company is Berger Paints with a market share of 13%-14%. Kansai Nerolac Paints too has a market share of around 13%-14%. Akzo Nobel India has a market share of 9%-10%.
- These are the 4 biggest paint companies in India. There are also some other listed paint companies in India such as Shalimar Paints.
- The overall Paint Industry in India has seen a correction of 15%-20%.
Analysis of the Top 4 Listed Paint Companies in India
- Market capitalization : Asian Paints has the biggest market capitalization followed by Berger, Kansai Nerolac and Akzo Noble having the smallest. Asian Paints and Berger Paints are larger cap companies. Berger Paints has come on the border line of large cap and mid cap categorisation as its stock got corrected. Kansai Nerolac is a mid-cap company Akzo Nobel India is a small cap company.
- Share Prices : All the 4 stocks are 15%-20% corrected from their respective 52 week highs. The biggest reason behind this could be crude oil because paint industry requires crude oil and its derivates as raw materials. Thus, if the input cost increase then it can have an impact on margins which ultimately has effect on the share prices.
- PE Ratio : Asian Paints & Berger Paints are enjoying premium PE valuations. All the 4 companies are trading with PE values above their historical PE values. This means that the paint industry has always traded with premium valuations. And in comparison with that, the industry is trading with overvalued PE values currently.
- D/E Ratio : Akzo Nobel and Kansai, which are also both foreign players, are running their businesses on 0-debt policy. As Berger Paints has the highest D/E ratio is has the lowest interest coverage ratio (ICR). Also, if you have 0-debt then the value of ICR holds no value.
- Promoter Holding : Akzo Nobel India, Berger Paints and Kansai Nerolac all have almost same promoter holding, which is high. Out of the total holding of 52.79% of Asian Paints, 11.98% promoter holding is pledged. The pledging has been done for some other business activities which the promoters are interested in and not for the core paints business. Asian Paints is in a high growth industry and has a consumption driven business. So, when companies which are performing so well and are in their growth phases, do these kind of activities then it can be an alarming sign.
- Profit Growth : Akzo Nobel has a very good 5-years profit growth. Kansai Nerolac has a 5-years sales growth of 10.45% which is very healthy.
- Enterprise Value : It is a measure of a company’s total value. It not only include the equity capital of the company but also the debt capital of the company. The market cap and the enterprise value of these companies are almost same, which means there are n discrepancies here.
- Operating Profit Margin : Asian Paints has the highest Operating profit margin which is a very positive sign for the company.
- Automobile industry and other similar industries which are heavily dependent upon crude oil come up with alternative energy resources, then demand for crude oil might go down.
- The paints sector is raw material intensive, with over 300 raw materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices.
- And when the demand for crude oil goes down, that time paint industry will benefit from this as the crude oil prices will go down and the input costs of the companies will also go down and the margins will improve.
- All the companies of Paint Industry in India have premium PE values which are well above their historical PE values and will remain the same way for some more time in the future.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- We are not in any way saying that these are bad companies, or the stock of this companies are bad.
- We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
- Only an analysis has been presented here. No judgments or final statements are being made here.