Asian Paints shares were gaining on Monday while Berger Paints‘ stock was trading slightly lower as global brokerage Morgan Stanley cautiously raised earnings expectations for the firms amid tailwinds from a steep drop in crude prices.

What Happened: Even as oil prices hit yearly lows, international brokerage Morgan Stanley has retained its “underweight” rating on paint companies Asian Paints and Berger Paints. The brokerage, however, revised its outlook slightly, raising its FY25 EBITDA margin expectations for both companies due to reduced commodity and oil prices.

For Asian Paints, Morgan Stanley increased its FY25 EBITDA margin assumption to 19%, up from 18.4%, projecting a 4% rise in earnings due to the dip in input costs. Despite this adjustment, the brokerage remains cautious, setting a target price of ₹2,522 per share, indicating a potential 24% downside from the previous session's close.

Similarly, Morgan Stanley reaffirmed its target price for Berger Paints at ₹497, implying a 20% downside. The brokerage also raised Berger's EBITDA margin assumption for FY25 to 16.2% from 15.5%, projecting a 7% increase in earnings for the current fiscal year, largely attributed to lower commodity prices.

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Why Is Oil So Important? Crude oil prices play a crucial role in the decorative paint industry, which relies heavily on petroleum-based raw materials. Over 55-60% of input costs for paint manufacturers are tied to raw materials, with crude oil influencing the cost of key components such as titanium dioxide, a critical ingredient in white paint.

Falling oil prices lower production costs, providing companies with the opportunity to improve margins and purchase materials at cheaper rates.

Last week, Brent crude prices dropped by 3%, while WTI fell by 5%, as concerns over demand increased following underwhelming fiscal stimulus measures from China, the world's top oil importer.

Price Action: Asian Paint’s share price was up 0.2% at ₹3,317.20 in morning trade on Monday, while Berger Paint’s share price slipped 0.23% to ₹616.10.

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