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With crude oil prices falling, 3 paint stocks you should keep an eye on

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Akshata Kamath
Akshata KamathAug 11, 2022 | 15:03

With crude oil prices falling, 3 paint stocks you should keep an eye on

Lookout for paint stocks like Asian Paints, Berger Paints and Nerolac. (Photo: Getty Images)

When global crude oil prices breached record highs in March and June 2022 and crossed $120/barrel (ie about Rs 9,500), sectors like paint, tire, and aviation were the worst affected. But now that the crude oil prices are coming down, keep an eye on Asian Paints, Berger Paints, and Kansai Nerolac.

Why is the paint industry dependent on crude oil? The paint industry uses crude oil derivatives like monomers and titanium dioxide as raw materials, and this accounts for about 40%-50% of a paint company's total expenses. So, when crude oil prices breach maximum record levels, stock prices of paint companies tend to dip lower (and sometimes hover around their 52-week low prices). Higher crude prices also affect a company's profit margins and reduced cash flows since higher crude prices mean a higher cost of raw materials and lower margins.

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For eg: In March 2022, the stock price of Asian Paints shocked the market when it fell by 12% in a week. Now, Asian Paints is a fundamentally strong company, enjoys big bets on it by most domestic and foreign institutional investors, and has made consistent profits. This led the industry to raise its prices by 5-10%, indirectly increasing inflation for residents. So why keep an eye on paint stocks? Crude oil prices have fallen by 14% in the last one month and are now currently at around $90 to $92/ barrel, companies in the paint, tire, and aviation sector are expected to make better margins and see an increase in their stock prices. 

Here are the three Indian stocks you should keep an eye on: 

1. Asian Paints: On July 19, 2022, when Asian Paints' price was Rs 3,000, Centrum Broking had given the stock a target price of Rs 3,600 in a year. But on August 11, the stock is priced at Rs 3416 and has increased by 25% in the last 1 month. On July 28, 2022, ICICI Securities recommended buying the stock at Rs 3,136 after setting a price target of Rs 3,700 in 12-18 months. Asian Paints also saw multiple block deals worth Rs 8 to 10 crores on August 11, 2022.

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2. Kansai Nerolac: The stock currently is priced at Rs 500 on August 11, 2022, and has gone up by 25% in the last 1 month. Experts at Prabhudas Liladher have increased their target price for the share from Rs 513 to Rs 558, while Julius Baer Equity Research has set a target of Rs 575. This is because Nerolac has hiked its prices, exited lower margin segments of industrial paints, is focusing on developing the B2B segment, and is also increasing the distribution of decorative paints. 

3. Berger Paints: IDBI Capital's report dated August 10, 2022, has set the target price of the stock to Rs 812 from its current market price of Rs 675. This is because its waterproofing business is doing better than its paints business, its subsidiaries have shown a year on year profit of about 51% (due to price hikes) and it will be expanding in the luxury decor business.

Last updated: August 11, 2022 | 15:08
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