Paint stocks surge up to 5% on sharp decline in crude oil prices

Major paint stocks experienced a surge 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, plummeting by 4.63% to reach $77.42 a barrel, while WTI crude futures also witnessed a notable drop of 4.91% to $72.9 a barrel.

Also Read: Oil prices drop over $3 on China’s demand concerns, US crude stock; Brent crashes to $78/bbl

Both of these crucial benchmarks marked a 9.12% decline this month so far, reaching their lowest levels in four months. The substantial decrease in crude oil prices on Thursday followed a larger-than-anticipated build-up in U.S. oil inventories.

Moreover, downward pressure is also being exerted by weak economic activity indicators from the EU and China. Analysts at ICICI Securities anticipate further downside potential in the near term. Earlier this week, the International Energy Agency indicated that global oil markets won’t be as tight as initially expected this quarter, as upward revisions to demand are overshadowed by upgrades to supplies.

Also Read: Centre cuts windfall tax on domestic crude sales, diesel exports

Amid this backdrop, Indigo Paints and Kansai Nerolac Paints have 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 manufacturing of paints, such as solvents and resins. When crude oil prices drop, it can lead to lower production costs for these raw materials, positively impacting the profit margins of paint companies.

The drop in crude oil prices was also 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 crore and 26.1 crore, respectively. The 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 apiece. Motilal Oswal also retained its ‘buy’ call on the stock with a target price of 1,770 apiece.

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 a 10.9% YoY rise in volume. EBITDA experienced a significant 30.1% YoY growth 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, an 33% improvement compared to a net profit of 220 crore in Q2FY23.

Despite the extended monsoon reducing the demand for premium emulsions and subduing the value growth, the company’s economy segment products performed well, said domestic brokerage firm Geojit Financial Services.

Also Read: Paints sector likely to see double-digit volume growth in Q3, says Nuvama; Asian Paints, Grasim among top picks

The company’s JV, Berger Nippon Paint Automotive Coatings, sustained robust top-line growth because of an uptick in the passenger car and SUV sectors, the brokerage added.

However, the brokerage downgraded its rating on the stock to ‘hold’ from ‘buy’ with a target price of 643 apiece, citing heightened 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 views 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 taking any investment decisions.

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Updated: 17 Nov 2023, 04:04 PM IST

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