Missed the bus? Paint stocks rally up to 90% in 1 year, triple-digit returns possible by Diwali

NEW DELHI: Consistent performance of paints companies in recent times has made many brokerages turn positive on the discretionary sector, even though some of them have already rallied as much as 90 per cent in last one year.

Experts said a drop in input cost on account of softness in crude derivatives, implementation of seventh pay commission award, support from reasonably good monsoon and a pickup in construction activity have made the sector look attractive.

Good June quarter earnings have only helped extend this optimism.

Shares of Shalimar Paints have soared 88 per cent in last one year, while Berger Paints has jumped 64 per cent, followed by Kansai Nerolac (up 50 per cent), Asian Paints (up 48.87 per cent) and Jenson & Nicholson (up 29 per cent).

Ajay Tyagi, EVP & Fund Manager-Equities at UTI Mutual Fund, is surprised by the volume growth that the paint companies have recorded across the board over the past three quarters.

Asian Paints and Berger Paints clocked volume growth of 12 per cent each in the derivative segment, while Kansai Nerolac reported a volume growth of 14-15 per cent during the same period. However, the growth in turnover (value growth) fell as the paint makes cut prices by nearly 2-3 per cent during March quarter.

In an interview with ETNow, Anuj Jain of Kansai Nerolac Paints said last week that the last two years has seen less rural and semi-urban demand and this time he was expecting the markets in north, central and west India to see a revival in the demand on a boost from good monsoon.

Brokerage UBS Securities said spending intentions in this year’s festive season, as suggested by UBS’ Evidence Lab survey, are higher than that in 2015.

“However, there are indications of a starker disparity between the ‘haves’ and ‘have nots’, with a higher proportion of households on either side of the spectrum,” it said.

The survey projected an acceleration in paint volume outlook with a higher frequency of painting and more people intending to paint within 12 months.

“Expansion in gross margin and Ebitda margin exceeded estimates across the board due to lower crude oil-derived RM costs. With healthy topline growth and margin expansion, bottomlines exceeded expectations, leading to earnings upgrades for FY17 and FY18,” ICICI Securities said in a note.

Vikas Khemani of Edelweiss Securities told ET Now that he expects consumer companies, including paints, with 10-15 per cent volume growth to do well over the next 12 months.