Shares of Asian Paints extended its loss into eighth straight day, down 1.5 per cent at Rs 1,570, on the BSE on Friday on report that Reliance Industries (RIL) is considering selling its 4.9 per cent stake in the country’s largest paint maker to trim its debt.
In the past eight trading sessions, the stock of Asian Paints has underperformed the market by falling 15 per cent, as compared to a 0.55 per cent rise in the S&P BSE Sensex.
RIL owner Mukesh Ambani is in discussions with banks for a potential sale of its 4.9 per cent stake in Asian Paints through a series of block trades, said a report by Bloomberg. RIL holds the stake through Teesta Retail.
"The size and timing of any potential sale haven’t been finalised, and Reliance could decide not to proceed with a deal," the report added. READ HERE
Adding to the pressure on the stock price is expectations by market analysts that the nationwide lockdown could hurt sales of the paint industry. The demand recovery, they say, is expected from H2FY20.
The domestic paint industry has grown strongly by 12 per cent in the last 10 years despite various macro challenges like demonetisation, introduction of GST, floods in various states, volatility in input prices. Major paint players like Asian Paints, Berger Paints and Kansai Nerolac have bounced back strongly supported by India’s long term growth drivers staying intact, strong supply chain networks, higher promotional spends, pan India dealer reach and strong management.
Considering the gradual relaxation from lockdown (as of now 76 per cent districts either in orange zone or in green zone), analysts at ICICI Securities believe the Covid-19 impact on paint companies will be limited till H1FY21 only, while a gradual demand recovery would start from the festive season.
The assumption of demand recovery is based on the brokerage firm's recent interaction with some paint dealers. In addition to this, significant input cost correction in a short span of time along with pricing power of paint companies would structurally help in gross margin expansion, it added.
At 11:14 am, Asian Paints was trading flat at Rs 1,599 on the BSE, as compared to a 1.6 per cent rise in the S&P BSE Sensex. A combined 2.7 million shares have changed hands on the counter on the NSE and BSE till the time of writing of this report.