Asian Paints has been a consistent compounder in Indian decorative paints Industry. With increasing Crude Oil volatility expectation from February due to Russia's decision to not sell Crude Oil to countries respecting EU's $60 price cap, the share has corrected from 3600 to 2800 levels ~ 22%
The recent earnings report further accentuated the concerns of investors, with slowing sales growth, but rising Operating Margins nonetheless. As per the management, it was a result of prolonged monsoon in October, which caused a tepid festive season sale.
The rising competition in Paints industry is not oblivious to anyone either, Grasim, JSW have major capex commitments. Will this lead to margins erosion, which when combined with slow Revenue growth, is a recipe for Wealth Erosion? or will Asian Paints continue to enjoy super normal profits from its yet undisturbed monopoly?
On the Technical side, the share has come back to 140 day EMA on weekly, which has been an undefeated support zone since 2009. However, the same trend was also observed for Berger Paints with 100 day EMA, but we recently saw how it not only broke it clearly, but has been trading below it for around 1 year now.
It will be very interesting to see if Asian Paints can bounce from here, but in my opinion, there aren't many/any positive triggers for the market side, apart from a shining decade long outperformance record of wealth creation. At a PE of 70 and 10 Year Median PE of 58, it seems like the worst is yet to come. However, my guess is as good as yours. I believe it might be a good time to take a step back, and reconsider our blind faith in perceived bluechip companies with unsustainable PE levels and single digit earnings growth, like Pidilite as well.
I do not intend to attract any criticism, and would like to clarify that it is my personal opinion, and I can be completely wrong at it. As a fellow swimmer in the tides of the markets, I have learnt that one can never be too cautious, only too overconfident.
The recent earnings report further accentuated the concerns of investors, with slowing sales growth, but rising Operating Margins nonetheless. As per the management, it was a result of prolonged monsoon in October, which caused a tepid festive season sale.
The rising competition in Paints industry is not oblivious to anyone either, Grasim, JSW have major capex commitments. Will this lead to margins erosion, which when combined with slow Revenue growth, is a recipe for Wealth Erosion? or will Asian Paints continue to enjoy super normal profits from its yet undisturbed monopoly?
On the Technical side, the share has come back to 140 day EMA on weekly, which has been an undefeated support zone since 2009. However, the same trend was also observed for Berger Paints with 100 day EMA, but we recently saw how it not only broke it clearly, but has been trading below it for around 1 year now.
It will be very interesting to see if Asian Paints can bounce from here, but in my opinion, there aren't many/any positive triggers for the market side, apart from a shining decade long outperformance record of wealth creation. At a PE of 70 and 10 Year Median PE of 58, it seems like the worst is yet to come. However, my guess is as good as yours. I believe it might be a good time to take a step back, and reconsider our blind faith in perceived bluechip companies with unsustainable PE levels and single digit earnings growth, like Pidilite as well.
I do not intend to attract any criticism, and would like to clarify that it is my personal opinion, and I can be completely wrong at it. As a fellow swimmer in the tides of the markets, I have learnt that one can never be too cautious, only too overconfident.