Asian Paints investors turning bullish on easing competition but CLSA says that is not the case

Shares of India's largest paints company Asian Paints Ltd

. have recovered over 15% from their recent 52-week lows, as investors bet on the fact that the heightened competitive intensity in the paints sector is now easing. However, brokerage firm CLSA says that it is not the case.

Asian Paints shares were scooped up by fund houses like SBI Mutual Funds and ICICI Prudential Mutual Fund in June, as the stock looked to recover from the lows, according to the Nuvama Alternative & Quantitative Research report in July.

Brokerages like ICICI Securities also upgraded the stock after four years of being bearish. Jefferies upgraded Asian Paints on July 9, and also raised its price target.

CLSA's comparison of key metrics across players suggests that the competitive intensity remains high and that Asian Paints has underperformed peers across key metrics.

"While the pace of new dealer acquisition will likely ease, we believe the new entrants, especially Birla Opus and JSW Paints will remain aggressive in increasing their sales to dealers, especially as we enter the festive period," CLSA wrote in its note on Tuesday, September 16.

Despite this underperformance, Asian Paints valuations remain higher than peers, and in-line with its long-term average of 68 times price-to-earnings.

CLSA has maintained its "underperform" rating on Asian Paints with a price target of ₹1,927, which implies a potential downside of 23% from Monday's closing levels.

38 analysts have coverage on Asian Paints, of which, 10 analysts each have a "buy" and "hold" rating, while 18 others have a "sell" recommendation.

Shares of Asian Paints ended 1.6% lower on Monday at ₹2,504. The stock is still up 9% on a year-to-date basis.