Indian Paint Industry Faces New Challenges Amid Rising Competition

The Indian paint industry is experiencing a decline in revenue growth and operating margins due to intensified competition, lower-value product sales, and price cuts amidst raw material cost reductions. Despite these pressures, the sector is poised to rebound with an emerging share of organized players and increased capacity expansions.

The Indian paint industry, after showing strong growth in fiscal years 2022 and 2023, faces a difficult period marked by heightened competition and pressures on margins, a report indicates.

Long-standing companies like Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, and Indigo Paints saw revenue growth slow to 4 percent in fiscal year 2024, down from a 14-15 percent CAGR from fiscal years 2019 to 2023, according to a study by CareEdge Ratings.

The revenue decline stems from price reductions linked to lower raw material costs and an increasing share of lower-value products. Despite more than 10 percent growth in volume, revenues suffered due to price cuts to partly offset softening raw material costs and a shift in product mix. Additional factors cited include intense competition, the impact of general elections, extended monsoon seasons, and continued price cuts, affecting the first half of fiscal year 2025.

Market dynamics were altered with new players such as JSW Paints and Grasim Industries entering the field, aggressively expanding capacity, dealership networks, and sales teams, resulting in intensified promotional activities and increased advertising spend. Consequently, incumbents are compelled to ramp up their capital expenditures and marketing efforts.

Expenses for advertising and sales promotions are expected to rise by 100-200 basis points as a portion of revenue, further squeezing operating margins. Operating margins decreased from an average of 18 percent during fiscal years 2020-2024 to 16 percent in the first half of fiscal year 2025. CareEdge Ratings forecasts a further decline to approximately 14 percent by fiscal year 2026 due to pricing pressures and fierce competition.

While operating margins shrink, gross margins are predicted to remain stable around 40 percent due to recent price hikes of 1.5-2.5 percent intended to counter increased input costs, especially those related to crude oil derivatives. The organized players' share in the paints sector is projected to rise to 80 percent in the medium term, driven by substantial capacity expansions from both existing companies and newcomers. Over one billion liters of extra capacity is expected to be available in fiscal years 2025-2026.

Decorative paints remain the primary growth driver, covering 70-75 percent of total demand, supported by repainting activities, urbanization, and increasing disposable incomes. Industrial paints, accounting for 25-30 percent of demand, find support in automotive, oil and gas, and infrastructure sectors. CareEdge's Associate Director Richa Bagaria notes that despite current challenges, the sector is set to continue growing at 8-10 percent with lower operating margins of about 14 percent in fiscal year 2026, compared to an average of around 18 percent over the past five years.

(With inputs from agencies.)