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This consistent wealth multiplier may hit brakes; CLSA downgrades Asian Paints to ‘sell’

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Consumption Sector, Consumption Stocks, , Slowdown In Consumption, Auto, FMCG, Consumer Durables, Invest In Stock market, Invest In Consumption Stocks

While Asian Paints shares have remained one of the most consistent wealth creators for shareholders, global firm CLSA has downgraded the paint-maker to ‘sell’ from ‘outperform.’ According to the global research firm, there are weak trends in several sectors, which could in turn hurt the prospects of the paint major.

Slowdown concerns are emerging as several sectors have been showing weak trends: a) Indian auto demand has weakened in the past six months with declines recently; b) HUL and Dabur highlighting growth moderation in staples; c) India s electronics import declining and airline traffic growth slowing down, said CLSA. CLSA has revised the share price target to Rs 1,400 from Rs 1,565 earlier. After three consecutive sessions of decline, Asian Paints shares are trading 1% lower at Rs 1,427 on BSE.

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Interestingly, Asian Paints has been a consistent wealth creator for shareholders over the last 2 decades. “Asian Paints has reported annualised earnings growth of 15% over the past 5 years, 20% over the past 10 years and 21% over the past 15 years. As a result, its annualised share price return has been 22% over the past five years, 34% over the past 10 years, and 30% over the past 15 years,” Marcellus Investment Managers said in a recent report. Apaert from the capital appreciation, the stock has also delivered 1.5-2% annualised dividend yield.

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However, CLSA said that it is cautious given near-term concerns on demand and high expectation from the stock. The fact thAT crude oil prices have risen sharply by 33% to $70 bbl from its January lows, also raise concerns on the paint industry, CLSA added.

Asian Paints had reported a 14.1% on-year rise in consolidated net profit for the October-December quarter to Rs 647.15 crore. The firm had reported a profit of Rs 567.21 crore in the same period last year. Revenue from operations stood at Rs 5,293.99 crore in the third quarter, against Rs 4,267.49 crore in the same period last year.