For investors on the lookout for multibagger stocks in the Indian stock market, one name which even today deserves a look at is Asian Paints. From a modest price of Rs. 16.25 in Jan 2000, the stock has risen to Rs.2600 levels in Dec 2020, generating multibagger returns.
Even if one had missed out investing in Asian Paints at IPO stage, an investment just ten years back in 2009 in the stock would have still given a return of more than ten times to an investor.
Is there any further upside in Asian Paints share price?
To answer this question, one should look at the company and what it does. As quoted by Peter Lynch "Behind every stock is a company. Find out what it's doing,"
Founded in the year 1942, today, Asian Paints is India's largest and Asia's third-largest paint manufacturing company. The company, along with its subsidiaries, has operations in 22 countries across the world with distribution in 65 countries.
The success story of Asian Paints can be largely attributed to its ability to connect with its dealers and consumers easily across various economic demographics.
The company directly supplies its paints to approximately 50,000 retail shops across India through a huge network of depots. Asian Paints has also partnered with retailers to offer customized services. Over the last few years, the company has added hundreds of “Colour Ideas” stores where customers can get custom advice on paint solutions for their homes from an Asian Paint’s authorized colour consultant.
Besides this, Asian Paints has consistently innovated in consumer approach by introducing colour via concepts like Colour World (Paint mixing systems where customers can choose colours from a shade card and get the required colour mixed), Royale Play, where special effects are made through various painting tools, Kids World (Fun painting ideas for kid’s rooms) and Home Painting Services which is convenient and fast.
Key strengths of the company at a glance
- Well-established supply-chain network
- Market leader in the paint industry in India
- Global presence
- Consistent demand in the rural and small markets
- Wide range of products in decorative and industrial paints, chemicals, adhesives and home decor
- Visionary management with an effective track record
- Strong financials
Challenges ahead for the company
Asian Paint’s margin outlook is heavily dependent on movements of crude oil derivatives comprise as much as 55% of raw material used in the manufacture of paints. Any rise in oil prices in future may affect the company's margins.
Check the valuation before investing
While there may be still a lot of steam left in the stock of Asian Paints, every investor needs to check whether it is trading at the right valuations. One of the essential principles of value investing is buying a stock with a margin of safety. The margin of safety can be described as the difference between the intrinsic value of the stock and the price payable for it. For example, if the intrinsic value of a stock is Rs 200, and it is quoting at Rs 160, the margin of safety is 20%. Every investor must understand that the higher the margin of safety, the lower is the risk and more the returns potential.
There are many opportunities currently available in the Indian Stock market, which have the potential to become the next multibagger stock like Asian Paints and deliver phenomenal multibagger returns. And we at Research & Ranking can help you to identify and invest in those untapped opportunities in the share market in India. Click here to know more.
The objective of this article is solely to help the readers understand whether the stock of Asian Paints is worth investing from a long-term perspective and should not be considered as an advice to buy/sell.