THIS paint stock turns ₹500 crore of Mukesh Ambani-owned Reliance Industries into ₹10,000 crore in 17 years

Dalal Street is abuzz about a possible stake sale by Mukhesh Ambani's Reliance Industries (RIL) in the blue-chip stock Asian Paints, which is expected to reap India's most-valuable company a neat profit of over 2,000%.

RIL acquired a stake in Asian Paints in 2008, when the company was a stock market darling, for around ₹500 crore. That stake is now worth ₹10,730 crore based on Asian Paints' latest closing price. If sold at current levels, it could reap Reliance Industries a multibagger gain of 2,046%.

RIL's stake in Asian Paints

RIL currently holds a 4.9% stake in India's biggest paints manufacturer, which is undergoing a challenging time amid rising competition in the segment.

This is not the first time that Reliance has considered cashing in on its investment in Asian Paints. Back in 2020, too, it had entered into discussions with banks for a potential sale of its 4.9% stake in Asian Paints, according to a Bloomberg report.

According to an Economic Times report on Wednesday, Reliance Industries has revived its plan to sell its 4.9% stake in Asian Paints and roped in Bank of America (BofA) to manage the transaction.

Asian Paints shares under pressure

Asian Paints shares have seen significant selling pressure amid growing competition in the paints segment, which could dethrone the company from its top spot.

In the last one year, Asian Paints stock is down 18%, while it has not made any returns for its investors over the last two or three years either. The stock is down 26.50% in two years and 25% in three years.

Asian Paints' market share fell to 52% from 59% in the 12 months ending March 31, Elara Securities data shows, raising the pressure on the industry leader to spend more on marketing and discounts to retain its crown.

Considering the uncertainty of demand recovery in the near term, the performance worries for Asian Paints continue, brokerage Motilal Oswal said in a note post earnings. It said growth recovery will remain critical for a rebound in the stock performance. Moderation in raw material prices is a positive for the business; recovery and competitive strategy on pricing and incentives will be the key monitorables, the brokerage added, while maintaining a ‘Neutral’ rating on Asian Paints stock, with a target price of ₹2,500.

Additionally, Asian Paints, in its Q4 call, highlighted that new players are causing a loss in market share.

“While the company remains focused on its strong brand and value offerings, we believe these efforts may not be enough, as Asian Paints' focus remains on ensuring the right balance between margins and market share. Market share is expected to come under further pressure unless the competition eases meaningfully,” said Elara Securities following the paintmakers' Q4 results last week.

It has a 'Sell' rating on Asian Paints stock with a target price of ₹1,940.

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