Asian Paints tightens its grip on waterproofing Should Pidilite investors worry?

“In our estimation, Asian Paints now has around 25% market share in the water proofing market and continues to gain share. Initially Asian Paints mainly played a role in remedial water proofing as painter is the main applicator in this segment and Thus, Asian Paints has a strong right to win. However, over the years, Asian Paints has also been pushing into the new construction water proofing segment,” said the Credit Suisse report.

Credit Suisse said it maintains an outperform rating on Asian Paints stock, in response to which the company’s shares hit a new all-time high on the National Stock Exchange.

It added that Pidilite’s revenue from construction chemicals, in which waterproofing is the largest segment, has seen a slowdown in growth since FY18, coinciding with Asian Paints’ increasing aggression in the segment.

So should investors lose sleep in Fevicol maker Pidilite?

In the June quarter post-earnings conference call, the company’s management had said that waterproofing penetration is still at 40%, there is huge room for growth and the company will not lose stake to new players.

Management said waterproofing is the fastest growing segment for the company and comprises three segments – organized real estate, individual housing, repair and renovation. Management said most paint companies operate in the repair segment and that paint companies in new construction are not a big competition in waterproofing.

Analysts at Edelweiss Securities Ltd believe that the company’s dominant position, wide reach with around 4 million outlets and strong engagement with middlemen as well as consumers act as strong entry barriers.

“The implementation of the Goods and Services Tax fueled domestic demand, and management continues to be confident of a growing top line led by business channel rebalancing, penetration and deepening product innovation. Good long-term performance of acquisitions and in core Sustainability of healthy growth The waterproofing and adhesives space has more business than Asian Paints exposure.” “Furthermore, since the adhesives space is already dotted with several multinationals and regional players, the entry of Asian Paints is not likely to materially change the competitive landscape for Pidilite in our view,” it added.

That said, some other analysts believe that Pidilite’s expensive valuation could weaken its bond with investors. The stock trades at around 80 times the one-year forward price-to-earnings ratio.