The Hindu Business Line : Black and glossy

PAINT stocks may not have caught investor fancy as information technology and pharma stocks have, but a look at the performance over the past five years as well as in this calendar reveals that they have rewarded investors handsomely.

If one had invested in a basket of paint stocks comprising Asian Paints, Goodlass Nerolac and Berger Paints on January 1, 1999, and held on to them, the returns to the investor would have been 21 per cent per annum; in the same period, the Nifty returned 12 per cent annually.

An investment in the same basket of stocks at the beginning of this calendar year would have yielded a whopping 95 per cent, which is substantially higher than the returns of the Nifty at about 55 per cent.

Asian Paints

We continue to maintain our buy rating on the stock in spite of an appreciation of 10 per cent from the previously recommended level of Rs 302.

Factors that go in favour of Asian Paints are its status of market leader, an integrated business model that enables it to contain costs better when prices of key raw materials go on the upswing, and a robust distribution network, all of which would enable it to capitalise on the secular growth in housing demand.

Asian Paints has also acquired the hue of a global corporation, with operations in 23 countries.

Admittedly, operations in some countries do expose it to the risks associated with inherently weak currencies, but given its experience in managing facilities that are geographically dispersed, Asian Paints could be expected to achieve a turnaround at such locations.

It would take at least a couple of years for the overseas acquisitions to make a meaningful contribution to the bottomline; Asian Paints should continue to benefit from the promising near-term prospects in the domestic market.

Goodlass Nerolac

The stock has appreciated by over 15 per cent since our last recommendation when it traded at Rs 365.

With the auto sector doing well, Goodlass has been a direct beneficiary, as it derives about 45 per cent of its revenues from the industrial paints sector.

With an enhanced focus on the derivatives segment, Goodlass aims to capture demand opportunities in this space as well.

Shareholders can retain their holdings of the stock; those looking to add the stock to their portfolio can consider doing so on any price declines linked to broad market trends.

Berger Paints

Another stock that has almost doubled this calendar year. Berger is the second largest player in the decorative market and the third largest in the overall paint market.

The new plant coming up at Jammu should enable it to fortify its standing in the North. Exposure to the stock can be contemplated on declines.

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