Asian Paints Up Nearly 25% Since October; UBS Upgrades Stock To 'Neutral' — Check Target Price
UBS believes the worst of the disruption cycle is now behind Asian Paints, but cautions that the sharp stock run-up already embeds significant earnings expectations.
The share price of Asian Paints Ltd. is trading in the green on Tuesday, after brokerage firm UBS turned more positive on the counter amid its mid-October rally of nearly 25%, post the sudden resignation of Birla Opus' CEO. The company also posted a stronger-than-expected Q2 performance.
UBS upgraded Asian Paints to 'neutral' and raised its target price to Rs 3,200, marking an upside potential of 11.5%.
Despite a sluggish demand environment, Asian Paints managed to deliver double-digit volume growth, though UBS notes this came off a low base.
UBS believes the worst of the disruption cycle is now behind the company, but cautions that the sharp stock run-up already embeds significant earnings expectations, roughly a 12% long-term CAGR over 15 years. Competitive intensity, it adds, may not have fully eased. Birla Opus' planned capacity is now operational, but the new entrant is yet to spell out its strategy, the brokerage points out.
Three Scenarios: One Step Back, Two Steps Forward
UBS lays out three valuation scenarios for Asian Paints:
Base Case: Competition persists but does not damage margins. Growth moderates structurally, but long-term earnings return to around 12% after the weak base normalises — supporting the raised target price of Rs 3,200.
Bear Case: Growth stays muted and margin pressure intensifies amid fierce competition, driving a downside valuation of Rs 2,400.
Bull Case: Competition eases and growth and margins revert to historic highs, implying an upside valuation of Rs 4,000.
UBS expects market conditions to improve in the near term and is more constructive on Asian Paints' long-term growth once the disruption cycle ends.
Key downside risks include renewed competitive aggression that erodes market share and profitability, while key upside triggers include a sharper-than-expected operational recovery that could lead to a meaningful rerating.
Shares of the company are trading 1.13% to Rs 2,899.90 apiece, as compared to a 0.35% decline in the benchmark NSE Nifty 50.
