Whalesbook
Mihir Shah, Vice President at Nomura, has upgraded Asian Paints and Berger Paints, stating the feared disruption from Birla Opus has not materialized. He also expressed optimism for Titan Company, seeing limited substitution from lab-grown diamonds, and remains positive on Britannia Industries, highlighting GST benefits and continued growth strategy post-CEO change. Shah notes moderation in new entrants' growth and returning dealers in the paints sector.
Mihir Shah, Vice President, India Consumer – Equity Research Analyst at Nomura, has provided an analysis of India's evolving consumption landscape. He has upgraded both Asian Paints and Berger Paints, calling it a bold contrarian call. Shah's reasoning is that fears of disruption from Birla Opus, backed by a ₹10,000-crore investment, have not materialized two years after its launch. He notes that product prices are similar to legacy players, and dealer margins are only slightly higher. While margins for Asian Paints and Berger Paints dipped by only 100–200 basis points during the aggressive launch phase, the growth slowdown was more a reflection of weak overall consumption.
Furthermore, dealer checks indicate that the rapid growth of new entrants is moderating, and some dealers who had switched are returning. Shah's stance is that competitive intensity remains high, but the disruptive threat has diminished.
He sees further upside potential in Asian Paints due to three converging tailwinds: volumes, margins, and re-rating. The company's strong second-quarter performance, including double-digit volume growth and a 240-basis points margin expansion, supports his view.
In the jewellery sector, Shah believes the threat posed by lab-grown diamonds to Titan Company is overstated. He highlights that Titan's studded jewellery has demonstrated a 19% CAGR over 12 quarters, with little evidence of lab-grown diamonds substituting this segment. He points to Titan's strong moats, brand trust, and the tailwinds from the organized market.
Shah also maintains a positive outlook on Britannia Industries, even after the recent exit of its CEO, Varun Berry. He identifies Britannia as a key beneficiary of GST cuts, with 65% of its portfolio priced between ₹5–₹10. Shah is confident that the new leadership can sustain the company's momentum, emphasizing a strong team, clear market opportunities ('white spaces'), and the ongoing journey towards becoming a total foods company.
Impact
This news, featuring positive analyst calls on major consumer companies, is likely to boost investor confidence. It could lead to increased buying interest and potential price appreciation for Asian Paints, Berger Paints, Titan Company, and Britannia Industries. The analyst's assessment that competitive threats are manageable and growth drivers are intact can also positively influence sentiment across the broader Indian consumer sector. Rating: 8/10.
Difficult Terms:
- Contrarian Call: An investment strategy that goes against prevailing market trends or popular opinion.
- Overhang: A potential risk or factor that could negatively impact a company's stock price or future performance.
- Disruption: A significant change caused by a new product, service, or business model that displaces established market-leading firms, products, and alliances.
- Margins: The difference between a company's revenue and its total costs, indicating profitability.
- Basis Points (bps): A unit of measure equal to one-hundredth of a percent (0.01%). Used for interest rates and financial percentages (e.g., 100 basis points = 1%).
- CAGR (Compound Annual Growth Rate): The average annual growth rate of an investment over a specified period longer than one year.
- Moats: Competitive advantages that allow a company to protect its long-term profits and market share from competitors (also known as economic moats).
- GST-cut beneficiary: A company that benefits from a reduction in the Goods and Services Tax (GST) rate.
- White spaces: Unexplored or underdeveloped market opportunities.
