Paint companies hope for revival strokes amid demand surge after lull

Paint companies showed early signs of recovery in the first quarter of the financial year 2026 (Q1FY26) despite an early monsoon and intense competition. Management sentiment is positive.

 

The sector posted marginal growth after four quarters of decline. An early festival season (Diwali in mid-October) may drive demand.

 

Paint companies saw single-digit quarter-on-quarter (Q-o-Q) growth in revenues in Q1. New player, Birla Opus (Grasim) claims it had 65 per cent revenue share in premium and luxury products. Raw material prices have softened, especially crude derivatives, but Ebitda margins for most players declined year-on-year (Y-o-Y), due to adverse product mix and high advertising and promotion (A&P) spends and overheads from idle capacity. Players like Asian Paints (18-20 per cent), Berger (15-17 per cent), and Kansai (13-14 per cent) maintained Ebitda margin guidance.

 

Demand may be supported by the early festival season and improving urban demand. Lower inflation and supportive government policies may aid recovery. Volumes are expected to rise by mid-single digits. Margins could remain flat or dip due to competition and push for market share. Softer raw materials prices may provide relief but anti-dumping duties on Chinese imports are a concern.

 

Although volumes rose 8-9 per cent in FY25, revenue fell due to price cuts, rebates and discounts. This was compounded by weak urban demand, slow housing activity and tepid car sales.

 

Urban demand may see some recovery in the sending half (H2FY26) and rural demand could be supported by a good monsoon. Manufacturers are focusing on automation, supply-chain optimisation, backward integration and product innovation leveraging existing capacity.

 

Capex will be directed toward product upgrades and backward integration, funded through internal accruals with capacity utilisation at only 70 per cent.

 

Capex by the top five manufacturers nearly halved to ₹2,100 crore in FY25, though new entrants commissioned six plants spending ₹10,000 crore in the past two financial years. The majors all have near debt-free balance sheets and aggregated liquidity of over ₹5,500 crore.

 

Industry leader Asian Paints reported a marginal 0.3 per cent Y-o-Y decline in consolidated revenue for Q1FY26 to ₹8,939 crore. Gross margins improved by 15 bps Y-o-Y to 42.7 per cent, aided by raw material cost deflation. Ebitda margins contracted by 70 bps Y-o-Y to 18.2 per cent due to higher sales and marketing investments. Adjusted PAT declined 6 per cent Y-o-Y to ₹1,100 crore.

 

Decorative segment volumes grew 3.9 per cent and the industrial segment grew 8.8 per cent Y-o-Y, driven by auto and protective coatings. But adverse product mix impacted revenue badly. Home décor was weak. Institutional business saw slowdown in some sub-segments.

 

International business saw 11.1 per cent like-to-like growth, with traction in South Asia and West Asia. The retail network expanded to 170,000 outlets. Asian Paints expects a total capex of ₹700-800 crore.

 

Management was cautious, guiding for single-digit growth in the near term. Raw material prices are expected to soften, but rupee volatility is a key monitorable.

 

Management reiterated that consolidated Ebitda margin will stabilise in the 18-20 per cent range, due to lower raw material costs. Backward integration into White Cement (Dubai) and VAM-VAE Emulsion (Dahej) are on schedule. These investments will boost cost efficiency and enable more product differentiation.

 

Berger Paints is making investments to fortify its network of contractors, painters, and dealers as competitive intensity increases. Berger’s overall Q1FY26 consolidated revenue was up 3.6 per cent Y-o-Y to ₹3,200 crore. Ebitda grew by 1.1 per cent Y-o-Y to ₹530 crore.

 

Adjusted PAT (APAT) declined 3.1 per cent Y-o-Y to ₹340 crore. Volume growth was 5.6 per cent and gross margins were up 150bps Y-o-Y to 41.4 per cent (down 130bps QoQ). Higher employee cost and higher other expenses caused Ebitda margin decline by 40bps Y-o-Y to 16.5 per cent.