The international brokerage noted that the share prices of Asian Paints and Berger Paints have corrected around 25% and 11% respectively since January 2024, mainly on concerns over aggressive entry of Birla Opus and weak demand in FY25. But that fear, he says, has not gone away.
“While FY24 volumes did not see much impact, FY25 was more affected by industry-wide weakness than competition,” the report said, adding that margins declined by only 200 basis points for Asian Paints and 100 basis points for Berger, which remained within their long-term ideal bands. There has been no major disruption to product pricing, dealer margins or the company’s profitability even at the height of Birla Opus’ expansion, it added.
Nomura’s dealer survey revealed that Birla Opus has already reached its target of 50,000 dealers and has utilized its entire investment budget. The company said the company’s rapid scale-up phase is coming to an end, with “easy selection from distribution expansion likely to be behind us”. In fact, sales of Birla Opus fell slightly quarter-on-quarter in 2QFY26 – a surprise due to its low base – and dealers started returning to established brands as margins and throughput were unsatisfactory.
“In 2QFY26, Birla Opus saw a low-single-digit qq decline in sales, which was not expected on its small scale following heavy investment for growth. Our survey also suggests that dealers have started going back to their old companies as margins and sales throughput were not sufficient for them. We believe that competition/growth will be affected by going ahead with large investments and distribution. will be measured further, if any,” Nomura said in a Nov. 6 note.
Live events
In a significant development, Birla Opus CEO Rakshit Hargave announced his resignation mid-week during a holiday. Hargway, who has been leading the company since its launch 18 months ago, will take over as CEO of Britannia Industries from December 15.
Even past entrants such as JSW Paints, Nippon Paints, Sherwin-Williams and Jotun have struggled to penetrate the market due to deep distribution of executives, tinting machine network and strong brand trust, brokerages point out. He called the resilience of Asian Paints and Berger Paints a “re-rating event” despite such huge competition.
“Competitive intensity will remain high but healthy, not disruptive,” Nomura said, adding that the sector is likely to return to steady growth once economic and demand conditions normalize.
The brokerage has set its target price for Asian Paints at Rs. 2,285 to Rs. 3,100 and upgraded the stock to Buy from Neutral, at Rs. 2,487 showing a 25% upside from the current price. It now values the company at 60x Dec-27F EPS at its 10-year average. Nomura expects Asian Paints to post an EPS CAGR of 10% in FY26-28, noting that the company has historically delivered around 18% annualized EPS growth between FY18 and FY24.
Similarly, Berger Paints has been upgraded to Buy From Reduce, with Rs. 675 (from Rs. 500) with a new target price of Rs. 537 has increased by 26%. The target P/E is pegged at 55x Dec-27F EPS, slightly below its 10-year average. Nomura forecasts 12% EPS growth for Berger in FY26-28.
“We have top competition behind us, and disruption was minimal despite the large investment,” the brokerage said, adding that both companies are likely to return to early-to-mid-teens earnings growth once the operating environment stabilizes.
Risks Nomura warned include higher-than-expected competitive intensity and lower-than-expected decorative volume growth.
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