The sharp rise in input costs following a rally in crude oil prices is likely to weigh on profitability. The ability to pass on costs will depend on market conditions and the volume-margin trade-off. Given the headwinds, top listed players have shed an average of 12 per cent over the past three months, and the near-term outlook may not improve if current conditions persist.
Despite elevated competition and raw material volatility, the sector delivered broad-based improvement across decorative and industrial paint categories in Q1. Demand, according to Equirus Securities, was supported by calibrated price increases, some pre-buying and channel stocking ahead of price hikes, premiumisation, distribution expansion, and healthy activity in projects and institutional business. Going ahead, the brokerage expects volume growth in the second quarter (July-September/Q2) to moderate sequentially due to monsoon seasonality and normalisation of dealer inventories. Dealer stocks had risen in the fourth quarter (January-March/Q4) of 2025-26 due to pre-buying, as traders stocked up ahead of price hikes.
Equirus Securities expects value growth to outpace volume growth as the full impact of price hikes taken in Q1 flows through. Festival season demand, a recovery in rural offtake, premiumisation, projects and institutional demand, distribution additions, and industrial growth should support a stronger demand trajectory thereafter, it adds. The brokerage is positive on Asian Paints and Berger Paints.
The key factor in the near term will be the demand trajectory. Based on its channel checks, PL Capital remains cautious on the near-term paints demand outlook. Secondary sales remain subdued across regions and brands, while dealers continue to focus on inventory correction following elevated stocking over the past two quarters.
The second half of September remains a key monitorable, as festival season stocking is expected to commence. Weaker monsoon conditions, aided by El Niño, are also likely to support a pick-up in painting activity. The pace and sustainability of the recovery in late September will be critical in assessing demand trends in the coming quarters, the brokerage said.
Analysts led by Amnish Aggarwal of the brokerage believe that the combination of channel destocking, subdued premium/luxury demand, and elevated competitive intensity could keep near-term volume growth under pressure across brands. The brokerage believes there are limited near-term triggers for players such as Asian Paints and Kansai Nerolac Paints amid weak demand visibility, sustained competitive intensity, and rising crude and raw material prices.
What could weigh on consumer sentiment and margins is the recent sharp uptick in crude prices and inflationary pressures. Brent crude prices continue to remain elevated and are up 32 per cent year-on-year (Y-o-Y) and about 38 per cent on a sequential, or three-month, basis. The crude benchmark is currently trading at $104 per barrel. Prices of titanium dioxide, a key input for paint majors, are up 10.6 per cent Y-o-Y and 23.3 per cent quarter-on-quarter.
The Street will also track the extent of competitive intensity amid a surge in raw material costs. Management in the paint sector has highlighted that competitive intensity has remained high, with no meaningful easing in pricing or dealer incentives. They expect the current competitive environment to continue through FY27, with the focus shifting towards improving dealer productivity.
Birla Opus has maintained its focus on hitting the revenue target of ₹10,000 crore by 2027-28 and is eyeing 50 per cent-plus growth in FY27. The company posted revenue of ₹1,660 crore in Q1, up 64 per cent Y-o-Y and 17 per cent sequentially, compared with 16 per cent standalone revenue growth for Asian Paints. Birla Opus gained 30 per cent market share sequentially.
JSW Dulux (formerly known as AkzoNobel India) reiterated its ambition of gaining the No. 3 spot in the decorative paint segment and the top spot in the industrial paint space.
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