Asian Paints, Nerolac: Weak demand to hit paint cos' Q2 profit: PL Capital

Paint companies’ profitability is expected to face pressure in the September quarter (Q2FY26) owing to weak demand amid adverse weather conditions, according to PL India. Additionally, it expects the demand trend to mirror Q3FY23, when extended monsoons dampened festive demand and resulted in muted volume growth. The brokerage also noted that heightened promotional activity will further weigh on margins.

 

PL Capital, however, hopes that conditions could improve in Q3FY26, as weather normalises and pent-up demand, particularly for exteriors and waterproofing products, starts to materialise.

 

Among individual players, the brokerage sees Kansai Nerolac as likely to be the most affected, given greater disruption in North India and subdued auto sales following goods and services tax (GST) rate cuts — a benefit it expects to reflect only from Q3 onwards. Auto paints account for 30 per cent of Kansai’s total paint sales.

 

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By contrast, Asian Paints and Berger Paints appear relatively better placed, with robust demand in the West and South offsetting weakness in the North, while demand in the East remains steady ahead of the festive season.

 

The brokerage has a ‘Reduce’ rating on Asian Paints with a target price at ₹2,248 per share. On Kansai Nerolac, it has an ‘Accumulate’ Rating with a target of ₹277 per share. 

Decorative paints likely to post subdued growth

Decorative paints are expected to post muted growth, with all-India volumes pulled down to mid-to-high single digits, even as ex-north regions record early double-digit expansion. This will be due to adverse weather conditions, the brokerage noted.  ALSO READ | Nomura sees loan growth revival; ICICI Bank, SBI, Axis Bank among top bets

Industrial paints demand muted

Industrial side, demand has been subdued with flat auto/OEM (original equipment manufacturing) volumes and delays in protective and waterproofing works due to heavy rains in regions like Jammu & Kashmir (J&K), Himachal Pradesh, Punjab, Rajasthan, and Gujarat, according to PL Capital’s channel check. However, GST rate cuts on autos could spark a strong rebound from Q3, benefitting Kansai Nerolac. 

Gross margins resilient, but competition may cap expansion

Competitive intensity continued to remain high in Q2, driven by Birla Opus' aggressive promotions and trade incentives, lower consumer prices than those of Asian Paints, Berger, and Kansai, and positive word-of-mouth feedback among contractors, which is enabling strong traction for Birla Opus products. 

 

Pricing power remains limited, but softer crude and efficiency gains are expected to offset price cuts and promotions. Analysts believe sector gross margins may stay resilient year-on-year (Y-o-Y), though further margin expansion is likely to be constrained by competition.