Phillip Capital sees brighter colours for paints sector; check top picks

Global brokerage firm Phillip Capital remains upbeat on India’s paints sector, stating that despite recent disruptions, the country’s ₹800 billion industry continues to be a resilient compounder with secular double-digit growth potential over the next decade, supported by a strong demand environment capable of sustaining multiple winners. The brokerage has initiated coverage on Asian Paints and Berger Paints with Buy ratings.

 

Phillip Capital set a target price of ₹3,360 for Asian Paints, citing the company’s ability to leverage its scale of 2,290 MLPA capacity, backward integration, extensive distribution reach of 169,000 retail outlets, product innovation, strong brand equity, regional customisations and execution excellence to sustain double-digit growth.

 

 

For Berger Paints, the brokerage assigned a target price of ₹700. The firm noted that Berger is positioned to drive growth through first-to-market innovations, expansion in under-indexed urban markets, focus on the pre-luxury segment and continued build-out of industrial protective coatings. These efforts are supported by its network of more than 65,000 outlets and a larger on-ground sales team.

Paints remain India’s colourful structural story

Phillip Capital believes that despite recent headwinds, the long-term fundamentals of the paints sector remain intact.  "While the pandemic, demand disruptions, and competitive pressure weighed on short-term numbers, long-term growth levers are intact. These include rapid urbanisation, rising disposable incomes, formalisation tailwinds, and growing consumer preference for premium products. They all underpin this multi-decade story," said the brokerage in its report.  CATCH STOCK MARKET LIVE UPDATES TODAY

Key demand levers

The brokerage highlighted that India’s per-capita paint consumption of 4.1 kg per year is less than half the global average. This indicates significant scope for volume expansion as urbanisation increases and home improvement cycles accelerate. Government initiatives such as Affordable Housing, PLI schemes for manufacturing and the Smart Cities program are expected to support demand for both decorative and industrial paints.

 

The repainting cycle, which accounts for approximately 75 per cent of total demand, is shortening to around five years, resulting in more frequent consumption. With decorative paints accounting for more than three-quarters of the market, the sector behaves more like a consumer discretionary category rather than a commodity business, which supports premium valuations.

New entrants disrupt

Competitive intensity has increased significantly over the past year amid a broader demand slowdown. Grasim’s Birla Opus has expanded rapidly, becoming the second-largest player by in-house capacity at 1,330 MLPA and capturing an estimated 6 to 7 per cent share in decorative paints. Its rapid network expansion to about 50,000 outlets, along with consumer schemes and dealer incentives, has challenged incumbents’ advantages in scale and distribution and has contributed to market share shifts. Asian Paints’ decorative market share slipped to 51 per cent from 54 per cent within a year.

 

JSW Paints’ strategic agreement to acquire Akzo Nobel’s India business has added another dimension to the competitive landscape and signals the start of a consolidation phase.

Recent trends signal a shift

Phillip Capital noted that some dealers are returning to incumbent brands as the initial excitement around Birla Opus begins to fade. While Birla Opus’s target of ₹100 billion in revenue by FY28 remains achievable, the brokerage believes it will be more difficult to sustain accelerated growth as the company scales up and shifts its focus to profitability. Recent quarterly results from established players suggest that the worst may be over, with volumes gradually moving toward double-digit growth as demand improves.

 

The brokerage expects competition to remain rational over the long term. High entry barriers and limited product differentiation support a broad-based growth outlook. Phillip Capital’s data-driven analysis projects sustainable double-digit volume growth for the decorative paints segment in the coming decade.

Risk reward is favourable

Phillip Capital cautioned that key risks include prolonged competitive intensity, volatile commodity prices, adverse seasonal trends and weak urban demand.

 

However, the brokerage noted that sector-wide valuation corrections have already priced in much of the near-term uncertainty.  "Investors with a medium-term lens will see scope for double-digit earnings growth as demand revives, competitive actions moderate further, and premiumisation plus operating leverage drive margin recovery," said Phillip capital.  

 

Historically, benign input costs and policy support have aided sector re-ratings, and these catalysts appear to be strengthening again. According to Phillip Capital, the risk reward is now favourable for market leaders that are well positioned to navigate near-term volatility and benefit from the revival in India’s paint demand.

 

(Disclaimer: The views and investment tips expressed by the brokerage 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.)