What next for paint stocks?

The upside for paint stocks looks capped after their recent hot streak

Paint companies have had a great run over the last three years, with stock prices surging 50-100% thanks to the steady uptick in both sales and profit. This has led to a sharp re-rating of the stocks, with the poster boy of the industry Asian Paints trading at 36x FY17 estimated earnings as against 33-34x for Berger Paints and Kansai Nerolac. The other major player, AkzoNobel India, is trading at 29x FY17 estimated earnings.

The steep fall in the crude price has been a major trigger and has eased the raw material costs of paint companies. Brent crude traded at an average price of $53 in CY15. While companies are yet to declare their full FY16 numbers, analysts expect raw material
costs as a percentage of sales to have come off by 2


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