InvestorQ : I have wanted to buy paints stocks like Asian Paints and Berger but was scared of valuations. However, even in current markets they have not fallen. Should I buy paint stocks?
Anjana Aiyar made post

I have wanted to buy paints stocks like Asian Paints and Berger but was scared of valuations. However, even in current markets they have not fallen. Should I buy paint stocks?

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Arya Nanda answered.
2 years ago
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You are right that paint stocks have not really corrected although the overall market is down. Both Asian and Berger are very close to their high price. What is also surprising is that the auto industry is a major market for paint companies and despite the slowdown in auto sales, paint companies are still doing quite well. Broadly, there are a few key reasons for this.

· The slowdown in auto will eventually hit the paints sector because the serious production cuts have just started. But the impact of the auto cut may not be too big if the recovery happens over the next 2 or 3 quarters.

· The home segment is really driving the paint industry. With more than 70% of the Indian population below the age of 35, there is demand for paints not only for new apartments but also for more frequent furnishing and refurbishing of homes. That is contributing in a big way to paint demand.

· Thirdly, larger paint companies like Asian and Berger are already foraying into the paint service side where there are big margins and becomes a natural extension to the paints business. It also ensures an additional line of revenues for the company.

· Paint companies have been able to very finely stratify the market and launch premium and semi-premium products for such markets with lower volumes but much fatter margins. That has also helped paint companies sustain margins.

You can say that paints are in a cusp right now and the real benefit of demographics will be visible in the coming quarters. Yes, valuations are a tad rich but you can still buy these stocks.

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