The Indian paint industry, after witnessing robust growth in FY'22 and FY'23, is bracing for a challenging landscape marked by intensifying competition and margin pressures, according to a report.
Revenue growth for long-established players such as Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel, and Indigo Paints moderated to 4 per cent in FY'24, significantly lower than the 14-15 per cent CAGR recorded between FY'19 and FY'23, CareEdge Ratings said in its study. The decline was attributed to price cuts with softening raw material costs and an increasing share of lower-value products in the sales mix.
“While the volume growth remained high at over 10 per cent, the revenue moderation can be attributed to price cuts undertaken by the players to partly pass on softening raw material cost and change in product mix with a growing share of lower-value products," the report said. The revenue was further impacted in the first half of FY'25 (H1FY'25) due to stiff competition, general elections, prolonged monsoon and the continued effect of price cuts, it said. The report stated that the entry of new players, including JSW Paints, Grasim Industries, and others, has disrupted the market. These entrants have aggressively expanded capacity, dealer networks, and sales teams, resulting in heightened promotional activities and advertising expenditure. This has pressured incumbents to respond with their own capital expenditure and marketing investments, it said.
The report noted that ad and sales promotion expenses are expected to increase by 100-200 basis points as a percentage of revenue, further straining operating margins. Operating margins for the sector declined from an average of 18 per cent during FY20-FY24 to 16 per cent in H1FY'25. CareEdge Ratings projects a further reduction to approximately 14 per cent by FY'26 due to pricing pressures and rising competition. The gross margin, however, is expected to remain stable around 40 per cent, aided by recent price hikes of 1.5-2.5 per cent to counter rising input costs, primarily crude oil derivatives
The share of organised players in the paints sector is set to rise to 80 per cent in the medium term, driven by massive capacity expansions by both incumbents and new entrants. Over 1 billion litres of additional capacity, predominantly from new players, is expected to come online in FY25-FY26, CareEdge said.
Decorative paints, which account for 70-75 per cent of total demand, continue to be the primary growth driver, fueled by repainting activities, urbanisation, and rising disposable incomes. Meanwhile, industrial paints, contributing 25-30 per cent of demand, are supported by sectors such as automotive, oil and gas, and infrastructure. CareEdge Ratings Associate Director Richa Bagaria noted that despite the challenges, the sector is poised to grow at 8-10 per cent with a somewhat lower operating margin of around 14 per cent in FY'26 as compared to the average of around 18 per cent in the last five years.
