Asian Paints’ shareholders had a fear that Goldman Sachs just confirmed— Indians will not rush to do up their homes

Asian Paints’ shareholders had a fear that Goldman Sachs just confirmed— Indians will not rush to do up their homes
Asian Paints
  • Goldman Sachs downgraded Asian Paints stock but the stock was already down 10 days in a row.
  • While the fall in crude oil prices will make it cheaper to manufacture paints, people may delay purchases as home renovation is not going to be a priority.
  • The report projected a nearly 30% fall in share price in the next one for India’s largest paints maker.
The cost of making paints is getting cheaper, thanks to the fall in crude oil prices but that is not going to get people excited enough to do up their homes.

Asian Paints, the Indian multinational paint company, has been downgraded by Goldman Sachs. With the coronavirus pandemic, home renovation is not going to be on people’s minds anytime soon resulting in a subdued demand for Asian Paints.

The target price for Asian Paints set by Goldman Sachs is ₹1,111, that would mean the stock has to fall nearly 30% compared to Monday’s closing price. The share price for Asian paints was down by 2.91% after the Goldman Sachs downgrade, accounting for its 11th straight day of fall in share prices.

The stock of Asian Paints has also been hammered by reports that Reliance Industries is looking to sell its 4.9% stake in the company for $989 million.

But the continued lockdown due to the coronavirus pandemic and people’s distrust in letting others into their homes, will hit Asian Paints sales. “We see significant risks to sales growth as we expect consumers to down-trade and extend the repainting cycle given the macroeconomic slowdown,” said the Goldman Sachs report.

This is how the estimates have changed since the start of the year.

YearDomestic decorative volume growth in Jan 2020Domestic decorative volume growth in May 2020
FY21 Estimate 15%-7%
FY22 Estimate13%12%

The fall in crude oil had worked in favour of Asian Paints, with its share price on April 22 recording a 5% jump. Crude oil is one of the biggest cost elements, nearly 30-35%, in the making of paints.

But the benefits from the pullback in input costs will be adjusted by the company as it hopes to drive volume growth, said Goldman Sachs. The investment firm however left a leeway of hope “However, if crude oil prices were to stay lower for longer, we see upside risks to our estimates that could make us turn more positive on the shares,” said the report.

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