Rs 10,000 in this stock 20 years ago is worth over Rs 14 lakh today

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The market has been busy throwing investment opportunities that can change the fortune of investors in the long run. You just need luck and knack to spot that stock. During the World War II and Quit India Movement in 1942, a temporary ban on import of paint gave an idea to Champaklal H Choksey, and his friends Chimanlal N Choksi, Suryakant C Dani and Arvind R Vakil to start a manufacturing paint at home.

This is how Asian Paints came into existence in 1945 and now the paint major holds a market capitalisation of over Rs 2 lakh crore. The paint major has been one the fastest wealth creator on Dalal Street.

The scrip rallied over 14,000% to Rs 2,422.65 as on March 17 closing, against its adjusted price of Rs 16 on the same day in 2001. The growth in share price shows that an investment of Rs 10,000 in the company is now worth over Rs 14 lakh.

The share price has been underperforming the benchmark equity indices in 2021 since the beginning of the year due to a sharp rise in raw material, especially crude oil and its derivatives. Asian Paints has lost nearly 15% YTD, while the BSE Sensex has gained 5.50% during the same period. Shares of the company have advanced nearly 40% during the past one year till March 17, while Sensex has gained 63%.

However, market watchers are bullish on the paint major considering the company’s diversification strategy. After foraying into kitchen, adhesives, home decor, among others. The company has entered into designer tiles. The company has entered at least one new business each year in the last seven years.

ICICI Securities has ‘Add’ rating on Asian Paints with a price target of Rs 2,600. The brokerage said the company has introduced designer tiles which can open up additional revenue opportunity of around Rs 30,000 per household. Asian Paints can leverage its existing brands and relationships with real estate developers. It can also offer better value to consumers via matching tiles with paints and protection against damp walls.

Overall, the company has posted a double-digit annualised growth in revenue and net profit during the past 15 years. Asian Paints had posted a gross sales of Rs 20,211 crore in FY20 against Rs 2,560 crore in FY2005, indicating an annualised growth of over 15%. Likewise, the consolidated net profit of the company grew 20% annually to Rs 2,728.40 crore from Rs 181.75 crore during the same period.

ICICI Securities added that Asian Paints may need to invest in distribution as there is limited overlap in paint and tile retail outlets. “Considering Asian Paints new product template of lower investments in capex and branding, we believe success can create value with a negligible downside in case of failure,” the brokerage said.

On the other hand, Edelweiss Securities highlighted that industry volume growth has a strong correlation with GDP growth (1.5–2x). Recovery in GDP from FY22 should give it a boost.

“We expect double-digit decorative volumes to sustain riding potential demand shift from the unorganised segment (around 30%). This, coupled with Asian Paints’ capability to hike prices, should help maintain margin. We maintain ‘Buy’ with a target price of Rs 3,140,” Edelweiss said.