Crude surge may trigger paint price hikes; Systematix prefers Berger Paints

Analysts at Systematix Institutional Equities have picked Berger Paints India as their preferred stock in the paints sector, citing its consistent growth outperformance. The brokerage has also maintained a Buy rating on Asian Paints, though it said it would wait for a broader acceleration in industry demand before turning more positive.

 

The brokerage’s view follows channel checks across India’s decorative paints market to gauge dealers’ expectations on product price changes amid volatile crude oil prices and geopolitical tensions, as well as overall demand trends.

 

According to Systematix, while there is near-term caution around the impact of volatile crude on pricing, margins, and volumes, the situation remains fluid with several possible outcomes.

 

Paint makers may hike prices if crude stays high

According to the brokerage report, Brent crude has risen 10–12 per cent over the past five days and about 10 per cent quarter-on-quarter, though it remains roughly 7 per cent lower year-on-year in the current quarter so far. Assuming prices hold at current levels until end-March, analysts expect crude to rise around 18 per cent sequentially for the quarter.

 

“If crude sustains at current high levels, most dealers expect product price hikes of 2–5 per cent in April. Dealers point out that paint companies have not indicated any price hikes so far and may wait until March 2026 ends for crude to stabilise and for clarity on cost impact and pricing,” analysts Abhishek Mathur and Rajat Parab wrote in a research note.

 

They believe any initial price hikes would likely be limited to low single digits and staggered over the first quarter of FY27 if crude remains elevated. Further price increases may follow if crude rises further and sustains at higher levels for longer.

 

The impact on margins, the analysts said, will depend on where crude prices settle and the timing of pricing actions. Their long-period analysis indicates that a roughly 10 per cent sequential increase in crude prices has historically led to about a 130 basis points quarter-on-quarter decline in aggregate gross margins.

Lessons from earlier crude spikes

 

In earlier periods, particularly between late FY22 and early FY23, when crude rose about 15–25 per cent sequentially, Asian Paints implemented staggered price hikes of 2–4 per cent, said the brokerage.

 

Even so, its gross profit margins declined about 350–450 basis points sequentially in the first two quarters of FY22, after which the company raised prices by roughly 15 per cent in the third quarter of FY22. Margins were again impacted by about 100–200 basis points sequentially in the first half of FY23 before crude prices corrected.

 

Margins later rebounded by about 200 basis points sequentially in the second half of FY22 and by 300–400 basis points in the second half of FY23. Despite the volatility, volume growth remained strong at around 13–14 per cent in the second half of FY22 and through FY23.

Demand trends and discounting

Demand remains stable with value growth in the mid-single digits, dealers across regions indicated. Sales in the economy segment, including economy emulsions and distempers, are growing faster than premium or luxury products for most players, including Asian Paints and Birla Opus. Discounting levels also remain broadly unchanged from earlier periods.

 

"Demand remains stable with value growth in mid-single digits, as indicated by dealers across regions. Sales in the economy segment, including economy emulsions and distempers, are faster than premium and luxury sales in most regions and for players including Asian Paints and Birla Opus. Discounting levels remain stable, with no material change from prior periods," said the brokerage in its report.

Preferred picks

Systematix continues to prefer Berger Paints India, highlighting its consistent growth outperformance and momentum across both decorative and industrial segments. The brokerage has set a target price of ₹570 per share, implying about 30 per cent upside from its previous close.

 

It has also reaffirmed its Buy rating on Asian Paints with a target price of ₹3,160 per share, implying about 38 per cent upside.

 

“While Asian Paints’ pricing power is a positive in the current environment, we await industry demand acceleration before turning more positive,” said the brokerage. 

 

 

Dealers, analysts said, indicated that Berger Paints India and Dulux are performing well in East and North India. Among products, Berger Easy Clean and Royale Interior Emulsion are seeing good traction in markets such as Amritsar.

 

Meanwhile, Birla Opus has gained traction among painters and contractors in South and Central India, with stable performance in the West and North but relatively low traction in the East. Dealers, Systematix said, attribute the uptick partly to higher incentives, including around 10 per cent extra volume on emulsions and additional coupons or tokens for contractors and painters.  ================================================ 

(Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)