Asian Paints Shares Drop 4% as CLSA Downgrades to ‘Sell’

Asian Paints shares fell by up to 5.6% in two days after the launch of Birla Opus. Experts predict that the stock will remain stable for the foreseeable future due to increased competition from fresh competitors such as JSW and Grasim.

Asian Paints shares


Anchor: Welcome to our newsroom, where you can get a brief explanation of what is happening in the world of business and the stock market in simple terms. This morning, Asian Paints shares fell over 4% in intraday trading, extending their decline into the second day. There is a reason for its downward trajectory. Today, again, we have with us Sanjay Shekhawat.

Anchor: Welcome, Sanjay, once again.

Sanjay: Thanks for inviting me again.

Anchor: Last week, you explained about BYJU’S EGM. Sanjay, explain to us What is happening with Asian Paints shares? Why is it falling?

Sanjay: Sure, there are two major reasons behind the fall of Asian paint share. The first is the new arrival of a competitor in the paints market, Grasim Industries: Birla Opus Paints.

Now, you may think It’s common for a company to have new competitors. But the thing with grass-roots industries is different. It’s the flagship company of the Aditya Birla Group. Companies like Asian Paints, Nerolac, and Berger Paints dominate the market. and the market is valued at ₹80,000 crore.

Grasim Industries jumps into this market with an investment of₹10,000 crore for six paint plants. Last week, the Aditya Birla Group announced its target of reaching a revenue milestone of ₹10,000 crore within just three years. This increases competition. More importantly, the company’s goal is to become the No. 2 profitable player in the paint market. Which raises tension for other companies in the same market. So, the current competitive pressure is affecting Asian Paint’s shares.

Anchor: And, what is the second reason?

Sanjay: The second thing is that foreign brokerage CLSA downgraded Asian Paints shares from ‘underperform’ to sell’‘ and reduced its target price by 24.57%. The target price was reduced to ₹2,425 from ₹3,215.

Anchor: What does it mean, and what is CLSA?

Sanjay: CLSA is a well-known brokerage firm that provides some services like investment advice, asset management, and corporate finance to its clients. CLSA believes that, due to increased competition, Asian Paint’s financial performance may fail to meet expectations. The entry of the grasim industries has led to negative sentiment among investors, causing them to sell off Asian Paints shares.

According to the firm’s report, Asian Paints may face challenges in maintaining its growth and margins as competition increases. By the way, CLSA is not the only one; Goldman Sachs has also lowered the price target for Asian paints.

Anchor: So, these are the reasons behind the drop in Asian Paints shares.

Sanjay: Yes, but it’s not only Asian Paints but other companies in the same market; for example, Nerolac and Berger Paints are also facing the negative impact of this new competitor, Birla Opus Paints.

Anchor: Thank you, Sanjay, for joining us.

In the third quarter of the financial year 2023–24, Asian Paints delivered impressive results, achieving a 34.9% rise in net profit and a 5.4% increase in net sales. Now, what remains to be seen is what difference the arrival of this newcomer makes to the financial results of the company.”

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FAQ

1. Why did Asian Paints shares fall?

A. The drop was due to increased competition from Birla Opus, launched by Grasim Industries, raising concerns about future growth.

2. What impact did Birla Opus have on Asian Paints’ stock?

A. The launch created negative investor sentiment, leading to a 4% decline in intraday trading.

3. What did the CLSA report say about Asian Paints?

A. The CLSA report downgraded Asian Paints to ‘Sell’ from ‘Underperform’ and reduced its target price by 24.57%. The target price was reduced to ₹2,425 from ₹ 3,215 because of the company’s growth and margins amidst increased competitive pressure, especially after the launch of Birla Opus.

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