Major paint stocks experienced an increase of 2–5% in today’s trading session, responding to a significant decline in crude oil prices. In the previous trading session (Thursday), Brent crude futures saw a sharp correction, falling by 4.63% to reach $77.42 a barrel, while WTI crude futures also witnessed a notable fall of 4.91% to $72.9 a barrel.
Also read: Oil prices fall over $3 on China demand concerns, US crude stocks; Brent crashes to $78/bbl
Both of these key benchmarks have marked a 9.12% decline this month so far, reaching their lowest levels in four months. The big decline in crude oil prices on Thursday followed a bigger-than-expected build-up in US oil inventories.
Moreover, downward pressure is also exerted by weak economic activity indicators from the EU and China. Analysts at ICICI Securities foresee further downside potential in the near term. Earlier this week, the International Energy Agency indicated that global oil markets will not be as tight as initially expected this quarter, as upward revisions to demand are overshadowed by updates to supplies.
Also Read: Center cuts entry tax on domestic crude sales, diesel exports
Amid this backdrop, Indigo Paints and Kansai Nerolac Paints jumped 5% and 2% in today’s trade, while Berger Paints, Akzo Nobel India and Asian Paints rallied between 1-2%.
Crude oil is a key component in the production of certain raw materials used in the manufacture of paints, such as solvents and resins. When crude oil prices fall, it can lead to lower production costs for these raw materials, positively affecting the profit margins of paint companies.
The drop in oil prices has also been a big positive factor for a country like India, which meets 86% of its oil requirements through imports.
Also Read: Nifty 50 recovers from October blow in just 10 sessions; up 3.59% in November so far
Meanwhile, for Q2FY24, paint companies delivered a decent set of numbers. Indigo Paints revenue and PAT grew by 11.5% and 25.9% YoY in Q2 to ₹271 crores and ₹26.1 crore, respectively. Operating profit rose 153 basis points YoY to 15.4%.
Following the company’s Q2 performance, domestic brokerage firm Sharekhan maintained its ‘buy’ rating on the stock, setting a target price of ₹1,850 each. Motilal Oswal also maintained his “buy” call on the stock with a target price of ₹1,770 each.
Also read: Five key trends in Q2 results revealed: Nuvama
Berger Paints India posted a 3.6% YoY improvement in its consolidated revenue to Rs. 2,767 crore, driven by 10.9% YoY increase in volume. EBITDA experienced a significant growth of 30.1% YoY to ₹474 crore, while the EBITDA margin expanded 350 basis points to 17.1%, led by lower input costs and an improved product mix.
It reported a consolidated net profit of ₹292 crore, a 33% improvement compared to a net profit of ₹220 crore in Q2FY23.
Despite the extended monsoon reducing demand for premium emulsions and dampening value growth, the company’s economy segment products performed well, said domestic brokerage firm Geojit Financial Services.
Also read: Painting sector likely to see double-digit volume growth in Q3, says Nuvama; Asian Paints, Grasim among top choices
The JV company, Berger Nippon Paint Automotive Coatings, continued robust top-line growth on the back of an increase in the passenger car and SUV sectors, the brokerage added.
However, the brokerage lowered its rating on the stock to “hold” from “buy” with a target price of ₹643 per, citing increased competition from both new and existing players. On the other hand, Kansai Nerolac and Akzo Nobel India also reported healthy numbers for Q2 FY24.
Disclaimer: The opinions and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Updated: 17 Nov 2023, 16:04 IST