Paint majors likely to remain under pressure amid weak demand, rising competition: Report

Paint makers are likely to remain under pressure for a sustained period of time owing to weak demand environment, sustained weakness in commentary from dealers and aggressive network expansion by Birla Opus, institutional equities research firm InCred Equities said in a report.

Growth of paint makers continued to decline in the third quarter of the current financial year with most players posting a sales decline or flattish year-on-year growth due to muted industry demand for decorative paints, early Diwali impacting festive sales and increased competition from all players, InCred Equities noted.

Muted growth in December quarter

InCred Equities noted that paint industry leaders expect subdued demand for at least two more quarters. However, Birla Opus has been making strides in its distribution, registering healthy organic sales with an estimated 65-70% of primary inventory placed in the channel already sold, along with consistent repeat orders.

Management commentary hints at sustained weakness

Most leading paint manufacturers, except Birla Opus, indicated that the near-term outlook remains weak, according to InCred Equities.

Asian Paints, the country’s largest paint maker by market capitalisation, remained cautiously optimistic. The company expects urban market weakness to persist for two more quarters. Growth is expected to be supported by rural and industrial segments, with raw material prices likely to remain stable. The company maintained its EBITDA margin guidance of 18-20%, InCred Equities said.

Berger Paints’ management expects value and volume growth to improve to mid-single and double digits, respectively, in the fourth quarter. It maintained its EBITDA margin guidance at 15-17%. A focus on urban distribution and projects business has yielded positive results. The slowdown is expected to ease by April 2025, though competitive intensity remains high, with new entrants holding a 3.5% market share, InCred Equities added.

Kansai Nerolac foresees near-term weakness but expects growth to return to high single digits in the decorative segment. The industrial segment remains relatively strong, driven by demand from passenger vehicles and two-wheelers, while the tractor segment is expected to recover, InCred said.

Birla Opus has deployed 90% of its ₹10,000 crore capex and remains confident of achieving its dealer network target of 50,000 by the end of FY25. Sales momentum has been strong, particularly among medium and large dealers, InCred added.

Channel checks

InCred’s channel checks indicate sustained weakness in urban markets for decorative paints, particularly in the water-based segment. However, dealers who adopted Birla Opus early have seen improving sales momentum.

Meanwhile, enhanced competition has led to higher discount offers across players, with even the market leader offering higher discounts on premium and luxury products. In the projects segment, Birla Opus has begun gaining traction, successfully converting project sites from incumbents, adding further pressure on existing players, InCred added.