Paint majors face near-term margin pressure amid rising crude costs

Rising crude and gas prices are set to squeeze margins of paint companies, even as demand remains stable and firms announce staggered price hikes to offset costs

Paint is among the many industries affected by high crude and gas prices. Paint companies have announced price hikes, with Asian Paints announcing hikes of 6-8 per cent effective mid-April and another hike on a different product line in late April. The firm’s industrial joint venture has also hiked prices.

 

Berger Paints also announced a price hike of about 1 per cent on its decorative portfolio effective this week, and more hikes could follow. Akzo Paints’ hike came into effect from March 16, with Kansai Nerolac also announcing price increases. 

 

At current levels, price hikes would need to be double-digit to protect gross margins. The impact on margins will be felt in the first quarter of financial year 2026-27 (Q1FY27) and beyond, given that inventory should cover Q4FY26 production. From the consumers’ point of view, the cost of paint is roughly 50 per cent of total cost of painting and hence, these hikes may not impact demand much.

 

There could be consolidation as larger players have deeper pockets to ride out a sustained period of expensive crude. The equations are simple. Crude oil will stay elevated due to the Iran War. This will trigger price hikes by paint companies to protect gross margins. However, hikes may be staggered, giving the market time to adjust. Timelines are uncertain, since nobody can predict how and when this conflict ends.

 

Historically paint companies have always hiked prices in staggered fashion, when crude prices have climbed. While this may negatively impact gross margins since the hikes don’t fully compensate for rising raw material costs, demand is less affected, ensuring volume stability.

 

Right now, analysts say demand is stable with value growth in mid-single digits. Economy sales are running faster than premium sales. Driven by larger dealer incentives, the Birla Opus brand has picked up in South and Central regions of the country and is stable in West and North, but has low traction in the East.

 

In Q3FY26 Asian Paints reported 4 per cent year-on-year (Y-o-Y) growth in consolidated revenue. Domestic volumes rose 8 per cent Y-o-Y. International business grew 6.3 per cent Y-o-Y (4.2 per cent in constant currency). Gross margin expanded 200 basis points Y-o-Y to 44.4 per cent. Operating profit margins rose 90 basis points Y-o-Y to 20.1 per cent leading to a 9 per cent Y-o-Y growth in operating profit to ₹1,780 crore. Management expects volume growth in the 8-10 per cent range and value growth of 5 per cent in the near term, with an operating profit margin guidance of 18-20 per cent. Asian Paints expects competitive intensity to stay elevated, with gradual demand improvement. 

 

Kansai Nerolac says growth in its auto and industrial paints segments is faster than the market, while in decorative paints, it is trying to maintain share given higher competitive intensity. Management sees investments across infrastructure, along with goods and sales tax and interest rate cuts as macro-positives.

 

In decorative paints (about 47 per cent of sales), retail delivers 85 per cent of business. In auto paints (about 36 per cent of sales), Kansai has grown its share from around 56 per cent to 61 per cent, with over 50 per cent share in cars and over 70 per cent in two/three wheelers. India is now an export hub for major original equipment manufacturers (OEM), which will further drive Kansai’s auto volumes. In the industrial paints segment, which accounts for about 17 per cent of sales, growth is double the market rate led by powder and liquid coatings. Management is hoping to raise operating profit margin by 200 basis points over the medium-term.

 

Berger Paints reported muted revenue growth of 0.3 per cent Y-o-Y in Q3FY26. Management expects recovery with double-digit volume growth in FY27 and value growth at 7 -8 per cent, retaining operating profit margin target of 15-17 per cent. Management says demand improved through November-January. It expects double-digit volume growth of 10 per cent in Q4FY26, with a 6 per cent volume-value gap. For FY27, volumes are set to grow at 12-13 per cent with value growth at 7-8 per cent. Capex of ₹1,800-2,000 crore is planned for new factories in West Bengal and Odisha over the next two-three years. Management is confident of sustaining operating profit margins in the range of 15-17 per cent.

 

A contrarian view may indicate a ‘Buy’ on the paint industry. Competitive intensity will ease due to the circumstances, and given that demand looks stable, the paint majors could come out stronger.