Asian Paints: 7000% returns in 17 years

Asian Paints has emerged as one such stock investment opportunity. If the numbers are to be believed, there is still potential for the stock to continue its uptrend. Let’s take a closer look at the Asian Paints stock story.

What has put Asian Paints in the spotlight?

There are several factors that have contributed to a ton of conversations and interest around Asian Paints. Brokerages in India and abroad and even certain newspapers in India are contributing to the increased popularity of this stock in recent times. Indian and foreign brokerages alike are putting up high target prices for Asian Paints stock.

The stock price has witnessed a steady rise over nearly two decades – this is typically seen as a green signal for long-term stock-market investors. For example, in 2008, the stock price was under Rs 100 and today the same stock is selling at a little over Rs 2500.  The price even hit a little over Rs 2,700 towards the end of 2020 before hitting a series of price corrections in January 2021, after which it has continued on its prior upward trajectory.

Numbers beyond just stock prices

There are several other factors that position Asian Paints as a potentially high earnings investment option and all of these factors are rooted in hard numbers. In the December quarter of 2020 – or the third quarter of the 2020-2021 fiscal – Asian Paints posted its highest ever margins and quarterly profit.  Quarterly and annual reports are one of the popular lenses through which investors judge the long-term potential of stocks. The highlights of its performance in this quarter are as follows:

• Consolidated Total Income: Rs 6,886.39 Crore (this represents an increase of nearly 27% when compared to the same quarter last year)
• Total Income: Rs 5,432.86 Crore (this represents an increase of over 25% when compared to the same quarter last year)
• Total Income: Rs 5,490.11 Crore.
• Net profit after tax: Rs 1,240.10 Crore.

Addressing what the haters say

With a consistent upward trajectory and a correction that happened only a little over three months ago, it is logical that investors worry about whether the stock is overvalued.  In fact, one might actually spot such questions on open forums if you look online. The expert take on this stand is that with companies that constantly demonstrate high innovativeness and constant growth, investors might not have to worry about a decline – especially if they plan to stay invested in the long term.  

Asian Paints versus its peer group

In fact, the best indicator of Asian Paints’ potential is how it fares against other paint companies in the country. We’re not going to try and convince you without the numbers – let’s take a few key stock market numbers into consideration

1. Prices: Asian Paints’ stock price stands at a little over Rs 2,500 while this blog post is typed up, whereas its competitors  Berger Paints India and Kansai Nerolac Paint have stock prices at a little over Rs 700 and a little over  Rs 500.
2. Stock price change: While Asian Paints displays a positive price change of 12.2%  at this moment, the  stock price change of Berger Paints India is a negative 6.45% while Kansai Nerolac Paint saw a price change of 2%.
3. Net sales: Asian Paints’ Net Sales stands at over Rs 20,000 crore whereas Berger Paints’ Net Sales is marginally above Rs 6,000 crore and Kansai Nerolac’s Net Sales just missed the Rs 5000 crore mark.
4. Capitalisation: All three paint leaders are large-cap companies.
5. Earnings per share: Asian Paints enjoys an EPS (Earnings Per Share) of Rs 28.66 while Berger Paints scores Rs 6.33 and Kansai Nerolac delivered Rs 8.81 EPS.
6. Net profit margin: Asian Paints enjoys a net profit margin of 13.39% whereas both its competitors are nipping at each other’s heels at just above 10%.
7. P/E ratio: Asian Paints’ price-to-earnings ratio stands at 89.25, while Berger Paints’ PE ratio is 114.09 and Kansai Nerolac Paint’s stands at 62.82. Usually, a lower PE ratio is preferable.
8. P/BV: Asian Paints’ price-to-book ratio stands at 20 versus Berger Paints’ 22.33 and Kansai Nerolac’s 7.22.  Typically a lower P/BV ratio is seen as preferable

As you can see, Asian Paints scores ahead of its comp set in 6 of the 8 parameters that one might typically look at when buying stocks.

Appeal to ethical investors

There is definitely a segment of investors who consider ethics and want to track who and what their capital supports. Asian Paints recently went the extra mile to sort out a dispute with the Karnataka government and local land-sellers, offering employment and business opportunities to the parties involved in the dispute. This went over and above the initial terms of the agreement. Stock prices fell marginally after announcements linked to the agreement emerged but picked up immediately after.

In conclusion, there does seem to be some justification in all the noise around Asian Paints. However, investors must put serious efforts into personally studying the stocks that they intend to buy. If you look at the Asian Paints stock graph, you will notice that the stock price has increased steadily and gradually over time – in other words, this does seem to be a better proposition for long-term investors.  While things look admittedly inviting, do consider your risk appetite before investing and always divide up your capital across a few different asset classes (or investment types), and within those asset classes too, avoid putting all your eggs in a single basket. Always diversify your investment to minimize stock market risk.

Remember that anyone can invest – age group, gender, job profile, salary and location are no longer restrictions to your investing journey. You can kickstart your exciting investment journey with Angel Broking and get your trading and Demat account off the ground within just a few hours. You can get useful education on the Angel Broking website and via its convenient (and free of cost) mobile. When it comes to Asian Paints, for example, you can get not only a stock price graph (with up to 5 years’ worth of historical data) but also P&L, balance sheet, shareholding pattern, and quarterly reports. You can even benefit from a returns calculator.