As of 9.46am, Asian Paints shares were trading 5.7% higher at Rs Rs 3,132.2 on BSE. The stock has risen in the past two days and is up more than 7% during the period.
Nomura said channel checks showed a 9% price hike across all portfolios. The price increase is greater than the cumulative price increase over the past six months, ie 7.5% in the first half of the current fiscal year.
With a sharp rise in prices, the brokerage expects the margin gap to be substantially closed. The paints business will only need an additional 5% price increase to fully close the gap, Nomura added.
Asian Paints has confirmed that the price hike will be effective from November 12.
Over the past month, the paintmaker’s stock fell 9% against the benchmark Nifty50 which was up more than 2%.
The demand scenario remains quite strong and the consumer is willing to spend, which should be good for companies like Asian Paints, where they have very strong franchises for retail customers, said Deven Choksey of KRChoksey.
“They raised the price largely to respond to the effect of rising commodity prices and it doesn’t stop. I think it’s also a little worrying, as it remains to be seen whether 100% of the price increase will be passed on to the respective quarters or periods, ”said Choksey.
“From my perspective, I think unless you saw some sort of easing of the cost pressure, I don’t think the immediate reaction would come in the form of a stock appreciation or better evaluation of actions, ”he added.
Meanwhile, some brokerages have reported that a price hike of a similar amount of around 8-9% was also announced by Berger Paints. Berger Paints India shares rose 4.6% to Rs 766.30.
This has led to the perception that other paint manufacturers may soon follow suit. Shares of Kansai Nerolac Paints, Shalimar Paints and Indigo Paints gained 2-4% today.
First publication: STI