Worst may be over for Asian Paints, but prospects still far from bright

Volume growth in low double digits and lower raw material costs lifted margins for Asian Paints, though management remains cautious amid intense rivalry and extended monsoon impact

Asian Paints reported a good performance for the second quarter (July-September) of 2025-26 (Q2FY26), with some help from base effects, despite strong competition and extended monsoon. Volume grew in low double digits in the key domestic decorative paints, and value in that segment grew by 6 per cent. Ebitda (earnings before interest, taxes, depreciation, and amortisation) grew 21 per cent year-on-year (Y-o-Y), and PAT (profit after tax) grew 14 per cent. Asian Paints also defended market share better after several quarters where it had lost ground to Birla Opus. 

Standalone revenues grew 5.6 per cent Y-o-Y to ₹7,360 crore after several quarters of revenue declines. There was double-digit growth in the industrial segment (in both auto and non-auto) as well as in the international business where Nepal, Sri Lanka, and Egypt did well. The divestment of loss-making operations in Indonesia also eased some stress. 

Margin pressures, however, remain and are unlikely to ease, given the intense competition in the industry. The management said growth (and by implication, demand) pickup was seen across rural and urban geographies and in economy, premium and luxury product segments. Management issued an incrementally positive demand outlook, guiding for mid-single digit value growth in FY26, with volume growth expectation of 8-10 per cent Y-o-Y. However, management also said it would be cautious and conservative for the next three-six months, though it expected momentum to sustain in industrial and international segments. 

Lower crude oil prices contributed to lower raw material costs, driving operating profit margin (OPM) expansion of over 200 basis points (bps). Management reiterated near-term OPM guidance of 18-20 per cent, noting that the backward integration project is on track for phase-1 commissioning in Q1FY27, which may lift margins by 1-2 per cent. The company beat peers on volumes. Commentary from paint majors such as Birla, Akzo and Indigo points to some volume recovery.

 

Competitive dynamics are stiff with newcomer Birla Opus having established an initial dealer base of 50,000. The battle to retain or gain market share will continue, and this will shave margins despite the benign raw material situations and backward integration projects. Brand-building spends will be elevated as a result, and the services segment remains crucial since it’s a key differentiator.

 

All products did well. However, premium/luxury emulsions and interior finishes did much better than exterior due to monsoons while waterproofing and construction chemicals (CC) grew in double-digits. The new products' sales salience is over 15 per cent. The ancillary Home Décor Kitchen and bath business revenue declined by 5-7 per cent, and the decorative lighting business revenue dropped 15 per cent.

 

The industry saw an aggregate 3.5-4 per cent Y-o-Y volume growth. Demand improved in September and early October. Advertisement spends are higher than peers, focused on micro-regional campaigns, and expectations are that volume growth will be higher than value. Over the past six-nine months, the company has strengthened relationships with dealers and distributors, focusing on improving its return on investment (ROI) and driving higher retail volumes. New product development (NPD) contributed over 15 per cent to total revenue.

 

Industry insiders believe that demand pressure has peaked but will stay stable at current high intensity. Given benign raw material costs, earnings expectations could see upgrades and, in turn, this may lead to valuation upgrades as well. The stock market response to the results was very positive. However, some analysts consider the current valuations rich, given the competition and also possible cost escalation if the rupee falls, or crude oil prices rise.