After Asian Paint’s Fall, Is There Pain In Store For Paint Companies?

Asian Paints has corrected over 11 percent from the lifetime high it registered in October. But its peers like Berger Paints, Kansai Nerolac and Akzo Nobel have not budged and continue to trade near their respective record highs.

Berger Paints has gained over 10 percent in the last 3 months whereas Kansai Nerolac and Akzo Nobel have gained between 1 to 2 percent. Asian Paints in comparison, has retreated over 3 percent in the same period.

Why the split?

Asian Paints traded at a substantial premium of 55 times forward price-to-earnings (PE) before its correction. It is now trading at 49 times, more in line with its peers like Berger Paints, which trades at 51 times, Kansai Nerolac at 44 times and Akzo Nobel at 42 times.

With respect to the companies' profit return ratios, little has changed with all four companies reporting steady second quarter earnings which were in-line with expectations. Historically, Asian Paints has always traded at a premium to its peers owing to its superior ratios. So given Asian Paints has broken away and declined, will the rest follow?