Shares of Asian Paints have gained 2.5% on Friday, while those of Berger Paints and Kansai Nerolac are trading with gains between 1.5% to 2%. Akzo Nobel India’s shares are also trading 7% higher after the deal announcement.
Here are five reasons why Paint stocks are doing well after the deal announcement:
No Major Price War
The deal was done at a discount of 16% to Akzo Nobel’s closing price on Thursday. This deal saw completion without any major price wars among incumbents, who were vying for the asset at various points of time in the past.
In an interaction with CNBC-TV18 on Friday, Berger Paints MD & CEO Abhijit Roy confirmed that Berger was indeed in the fray for Akzo Nobel India, but let go of the deal due to valuation concerns.
Companies Familiar With Competition
Unlike previous instances, where the stocks have taken a beating due to the entry of a new player and subsequent fears of rising competition, this instance has seen one paint company acquire another.
This means that the incumbents are familiar with each other and there is no new entry into the sector, that could threaten any new disruption.
Improving Demand
FMCG companies have highlighted recently that the demand environment is improving, and brokerages like HSBC are expecting a consumption boom worth $40 billion to take place in India over the next two years.
Berger’s Roy also highlighted during the interview that demand environment has improved the month of June.
Benign Raw Materials
Paint stocks and other crude sensitives had taken a hit earlier in the week with the escalation in tensions between Iran, Israel and the US getting involved in the conflict. This resulted in a surge in crude oil prices, which is a negative for paint stocks, as more then 50% of their input is linked to crude.
However, with a de-escalation in tensions, oil prices have taken a knock and are back below the $70 per barrel mark. A benign raw material environment is beneficial for the margins of such companies.
Valuation Comfort
Most of these paint stocks have corrected anywhere between 10% to 35% over the last 12 months, which has resulted in a correction in their valuations from peak levels.
| Stock | Fall From 52-week High | FY27F P/E |
| Asian Paints | -33% | 45x |
| Berger Paints | -10% | 41x |
| Kansai Nerolac | -24% | 39x |
| IndigoPaints | -32% | 35x |
| Akzo Nobel | -28% | 32x |
