Painting the town red

While a number of international players, like Akzo Nobel, Sherwin-Williams and BASF, found it difficult to grow their market shares in India, Asian Paints has remained the undisputed market leader.

A number of international players have tried their hand and luck in the lucrative decorative-paint market that is India. None has, however, managed to dislocate Asian Paints from its position of industry leader. Many of these entrants included global majors like Akzo Nobel, PPG Industries, Sherwin-Williams, Axalta and BASF - all much larger than Asian Paints. The above brands, for instance, are the top five global paint companies. While none has managed to take market share away from Asian Paints, players like Sherwin-Williams folded their India operations and exited from the country.

Long-term shareholders of Asian Paints have much to cheer. A ₹10,000 investment a decade ago is worth ₹1.72 lakh today, multiplying your money 17 times over the years.

In a testimony to its brand strength, Asian Paints has earned average gross margins of 41 per cent in the last decade. Gross margins came in at 47.5 per cent - up 430 basis points in the first quarter of the current financial year due to stagnant titanium dioxide prices.

The paint industry is a proxy for economic growth in the country. According to the company management, a 16 per cent value growth (and a similar volume growth) would call out a recovery. Though volume growth hit the double-digit mark in the most recent quarter, a recovery is still some time away in the future.

Asian Paints has historically traded at 31 times its TTM earnings in the last decade. That premium has jumped to over 50 times earnings. Even though the stock is treated as a defensive bet against market fluctuations, current valuations leave little comfort for fresh investments. Wait for the stock to cool down before making an entry.