Demand brightens the outlook for paint majors on strong Q4 performance

Strong demand, premium product mix and easing competition boosted paint makers' March-quarter performance, though the impact of price hikes on future volumes remains a key monitorable

Aided by steady demand, improved mix and strong volumes, paint majors delivered better-than-expected performance in the March (Q4FY26) quarter. 

The top paint makers reported improving demand trends for decorative paints segments and volume uptick despite taking price hikes. Another positive is the lower level of competitive intensity with new players also taking price hikes which are reducing the price gap with incumbents. Even as companies have taken a slew of price hikes over the last couple of months to offset the surge in input costs and are confident about demand, the impact of the increased retail prices on volumes and the extent of the hike on margins are the key things to watch out for, going ahead. 

The top three listed paint companies by market capitalisation, Asian Paints, Berger Paints, and Kansai Nerolac are up about 10-13 per cent over the last month. 

The gains for Indigo Paints are higher at 13.5 per cent while JSW Dulux (erstwhile Akzo Nobel India) was up 5.5 per cent with most of the gains coming in Friday session for the new entrant. Market leader Asian Paints delivered a better-than-expected volume growth as well as revenues which hit multi-quarter highs. The company posted decorative volume growth of over 12 per cent year-on-year (Y-o-Y) and also an improved product mix due to higher growth in premium-luxury segments. 

These led to consolidated revenue growth of 11 per cent Y-o-Y, the first instance of double-digit growth in 12 quarters, point out Abhishek Mathur and Rajat Parab of Systematix Research. Asian Paints expects volume growth to come in at 8-10 per cent Y-o-Y in the next few quarters despite pricing actions. A better product mix is also expected to bridge the value-volume gap to 3-4 per cent compared to the previous guidance of 4-5 per cent. 

For Berger Paints, the number two player in the decorative paints segment, volume growth hit the highest levels in 12 quarters. The company’s standalone volume was up 11.8 per cent Y-o-Y and was aided by channel stocking prior to the price hike and improvement in the underlying demand. Value growth came in at 6.7 per cent and the value-volume growth has come down to 5 per cent from 7-8 per cent over the last two quarters. This was aided by premium-emulsion traction, richer mix and price hikes towards the fag end of Q4. 

With price hikes now implemented, Pranav Mehta and Jinesh Kothari of Equirus Securities expect value growth to outpace volumes, although growth is likely to normalise from elevated Q4 levels (which benefited from pre-hike channel stocking). Kansai Nerolac Paints’ (KNPL) March quarter sales growth at 7.5 per cent was much better than estimates. 

It was led by better show of the decorative retail business, higher contribution from new product launches, especially in the higher margin emulsion category and a good performance in super premium products along with withdrawal of promotions in the economy segment. 

Mihir P Shah and Riya Patni of Nomura Research believe that KNPL’s strategy of focusing on select markets has led to share gains, especially in Tier II and III markets. KNPL is likely to benefit in the near term from high prices for non-availability of key inputs that impact smaller players and April seeing stock-up pre-monsoon, they add. 

Most paint majors expanded their margins on a Y-o-Y basis both at the gross and operating profit levels given the lower input costs and cost control measures. Asian Paints saw its gross and operating profit margins expand by 90 basis points (bps) and 215 bps, respectively. The company has taken price hikes of 11 per cent in April and May against raw material cost increase of 20 per cent. While it intends to increase prices partially, it is expected to absorb some of the inflation through cost control, better mix and operating efficiencies. 

KNPL’s gross margins expanded by 20 bps while at the operating level, the gains were 195 bps due to cost efficiency programmes. Its higher exposure to the industrial (B2B) segment is expected to impact near term margins, going ahead. Improving mix within segments and lower contribution from economy products could offer relief. 

Berger Paints reported its highest gross margins in 22 quarters on account of a favourable mix. However, higher other expenses and employee costs led to capping of margin expansion at the operating level to 97 bps. Upasana Madan and Sriram Nerkar of Centrum Research believe that operating profit margins for Berger Paints will remain at the lower end of the guided range (15-17 per cent) as the company will invest to defend its market share.